Weekly Market Update, November 28, 2022

Posted on November 29, 2022 by Neal Gallagher

Presented by Mark Gallagher

General Market News

After the Federal Reserve (Fed)’s fourth consecutive rate increase of 75 basis points (bps), the recently released minutes from the early-November meeting indicate that most Federal Open Market Committee (FOMC) members could support dropping to a smaller rate hike when they reconvene in December. “A substantial majority of participants judged that a slowing in the pace of increase would soon be appropriate,” the minutes read. This comes as inflation remains at a stubbornly high level but is showing signs of potential moderation moving forward. While the pace of ongoing rate hikes is certainly an important piece of the puzzle, market participants are also looking for more clues as to what a likely terminal value may be at the end of the cycle. Currently, expectations are hovering around a terminal rate of about 5 percent, but there is plenty more data to be released before that end point comes more clearly into focus. The U.S. Treasury curve was slightly down last week. The 2-year, 5-year, 10-year, and 30-year lost 2 bps (to 4.5 percent), 3 bps (to 3.92 percent), 4 bps (to 3.73 percent), and 12 bps (to 3.76 percent), respectively. Last week’s data was lighter than usual due to the holiday, but the release of durable goods orders and the November FOMC minutes helped provide insight into economic conditions and policy. Equities moved higher as earnings and Fed speak about potentially slower rate increases moving forward helped lift markets. Dell (DELL), HP (HPQ), Analog Devices (ADI), and Deere & Company (DE) all posted modest earnings. While the semiconductor space will take any positive news it can get due to recent headwinds, HP announced it will lay off 6,000 employees through the end of 2025 amid cost cuts. The potential for slower rate increases, however, did not immediately lift growth stocks. The top-performing sectors last week were utilities, materials, financials, and consumer staples. Sectors that underperformed included energy, technology, and consumer discretionary. Wednesday saw the preliminary release of durable goods orders for October. Both headline and core durable goods orders came in above expectations during the month, which was a good sign for business spending. Wednesday also saw the release of FOMC meeting minutes for November. The minutes from the most recent Fed meeting showed that central bankers are carefully monitoring the path of inflation as they consider slowing the pace of rate hikes at future meetings.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	1.56%	4.15%	–14.29%	–10.96%
Nasdaq Composite	0.73%	2.29%	–27.70%	–26.95%
DJIA	1.80%	5.16%	–3.70%	0.46%
MSCI EAFE	2.15%	12.34%	–13.69%	–10.60%
MSCI Emerging Markets	–0.09%	11.12%	–21.57%	–20.79%
Russell 2000	1.07%	1.34%	–15.74%	–15.64%

Source: Bloomberg, as of November 25, 2022

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	3.48%	–12.78%	–12.84%
U.S. Treasury	2.36%	–12.28%	–12.54%
U.S. Mortgages	4.01%	–11.48%	–11.46%
Municipal Bond	4.06%	–9.32%	–9.02%

Source: Morningstar Direct, as of November 25, 2022

What to Look Forward To

This week’s data will provide a number of insights about consumers, including the November Conference Board’s Consumer Confidence survey and employment report as well as the October income and spending reports.

The week will kick off Tuesday with the Conference Board Consumer Confidence Survey for November. Consumer confidence is set to decline modestly in November, echoing a similar decline in the University of Michigan consumer sentiment survey during the month.

Thursday will see the release of both personal income and spending reports for October and the ISM Manufacturing index for November. Both personal income and personal spending are expected to show continued growth in October. Manufacturing confidence is expected to fall into contractionary territory, highlighting the headwinds that the industry is facing.

Finally, Friday will see the release of the employment report for November. Economists expect to see that 200,000 jobs were added during the month, which would be a step down from the 261,000 that were added in October but still strong on a historical basis.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com
Authored by the Investment Research team at Commonwealth Financial Network.
© 2022 Commonwealth Financial Network®

Weekly Market Update, November 21, 2022

Posted on November 21, 2022 by Neal Gallagher

Presented by Mark Gallagher

General Market News

Despite seeing some recent data that potentially points to a slowing pace of inflation, there is still tightening to be done. Core Consumer Price Index (CPI) data for October increased 0.3 percent month-over-month, but Federal Reserve (Fed) officials have indicated that this better-than-expected result should not be seen as a sign that the inflation fight is over. St. Louis Fed President James Bullard noted, “Thus far, the change in monetary policy stance appears to have had only limited effects on observed inflation . . .” He went on to say, “To attain a sufficiently restrictive level, the policy rate will need to be increased further.” The U.S. Treasury curve twisted slightly last week. The 2-year and 5-year gained 17 basis points (bps) (to 4.5 percent) and 4 bps (to 3.98 percent), respectively. The 10-year and 30-year fell 2 bps (to 3.79 percent) and 13 bps (to 3.89 percent), respectively.

Equity market performance was mixed last week as we saw varied commentary from Federal Open Market Committee (FOMC) members. FOMC Vice Chair Lael Brainard echoed the sentiment of James Bullard in that the Fed was potentially looking at slowing the pace of future rate hikes. The Fed’s continued hiking cycle saw inflationary plays such as consumer discretionary, energy, REITs, and materials sell off. The Nasdaq Composite also underperformed its Dow Jones and S&P 500 counterparts as growth stocks continued their underperformance in the face of higher costs of capital going forward. International markets fared a bit better with the MSCI Emerging Market Index up 79 bps as China has showed signs of easing some Covid-19 policies despite rising infection rates. Consumer staples, health care, and utilities outperformed, led by earnings from Walmart (WMT) as the store benefits from its food/staples business.

Last week’s data was focused on retail sales and the housing market, starting with the release of October retail sales data on Wednesday. Both headline and core retail sales growth came in above expectations, signaling continued resilience for the American consumer.

The week wrapped with the release of existing home sales for October. Existing home sales fell less than expected. This does mark 10 consecutive months with declining home sales, however, as rising prices and mortgage rates continue to cool the housing sector.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	–0.61%	2.56%	–15.60%	–14.24%
Nasdaq Composite	–1.51%	1.55%	–28.23%	–30.03%
DJIA	0.11%	3.29%	–5.41%	–3.25%
MSCI EAFE	0.26%	9.97%	–15.51%	–15.74%
MSCI Emerging Markets	0.79%	11.23%	–21.50%	–23.59%
Russell 2000	–1.70%	0.27%	–16.63%	–19.98%

Source: Bloomberg, as of November 18, 2022

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	2.40%	–13.69%	–13.64%
U.S. Treasury	1.48%	–13.03%	–12.93%
U.S. Mortgages	2.95%	–12.38%	–12.42%
Municipal Bond	3.66%	–9.67%	–9.31%

Source: Morningstar Direct, as of November 18, 2022

What to Look Forward To

This week’s data will be light as a result of the Thanksgiving holiday.

Wednesday will see the release of durable goods orders and the FOMC meeting minutes from November. Business spending is set to increase for the third consecutive month in October. Economists and investors will look to the minutes for any hints on the future path of monetary policy.

Weekly Market Update, November 14, 2022

Posted on November 14, 2022 by Neal Gallagher

Presented by Mark Gallagher

General Market News

The Consumer Price Index (CPI) surprised markets last week with headline—which rose 0.4 percent month-over-month against an expected 0.6 percent gain—and core—which rose 0.3 percent month-over-month (excluding food and energy) against an expected 0.5 percent gain—numbers. These results were driven by a decline in prices for used vehicles, commodities, and medical care. The bond market rallied heavily on the news. The 2-year, 5-year, 10-year, and 30-year fell 24 basis points (bps) (to 4.42 percent), 33 bps (to 4 percent), 29 bps (to 3.87 percent), and 19 bps (to 4.06 percent), respectively.

Equity markets also rallied on the lower-than-expected inflation data as Thursday saw the S&P 500 and Nasdaq Composite Index up more than 5 and 7 percent, respectively. The top-performing sectors were those that have been hit hardest by the higher rates and cost of capital, including technology, communication services, and materials. The high growth and yet-to-be-profitable names rebounded sharply in this two-day rally as the potential for a lower cost of capital in theory increased company values via a lower discount rate. That said, not all of the inflation report was positive as both energy and shelter continued their trend higher. The data reflected that not all areas are out of the woods; it may make sense to err on the side of caution before assuming one data point will confirm the trend in the months to follow.

Thursday saw the release of the CPI for October. Consumer prices increased less than expected, due in part to declining prices for consumer goods.

Finally, Friday saw the release of the preliminary University of Michigan consumer sentiment report for November. Consumer sentiment fell more than expected during the month, as consumer views on current economic conditions soured to start November.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	5.93%	3.19%	–15.08%	–13.40%
Nasdaq Composite	8.11%	3.10%	–27.13%	–28.05%
DJIA	4.22%	3.18%	–5.51%	–4.60%
MSCI EAFE	8.42%	9.69%	–15.73%	–16.61%
MSCI Emerging Markets	5.74%	10.35%	–22.11%	–25.14%
Russell 2000	4.64%	2.00%	–15.19%	–20.90%

Source: Bloomberg, as of November 11, 2022

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	1.91%	–14.10%	–13.97%
U.S. Treasury	1.36%	–13.14%	–12.88%
U.S. Mortgages	2.55%	–12.72%	–12.69%
Municipal Bond	1.73%	–11.35%	–11.00%

Source: Morningstar Direct, as of November 11, 2022

What to Look Forward To

This week’s data will focus on the consumer and housing.

Wednesday will see the release of retail sales figures for October. Retail sales are expected to increase 0.9 percent, which would be a sign of continued consumer resilience.

Friday will see the release of preliminary existing home sales data for October. Existing home sales are expected to fall for the ninth consecutive month, driven by rising mortgage rates and slowing demand.

Weekly Market Update, November 7, 2022

Posted on November 10, 2022 by Neal Gallagher

Presented by Mark Gallagher

General Market News

Last Wednesday brought the Federal Open Market Committee (FOMC)’s latest rate decision where it hiked the policy rate by 75 basis points (bps) for the fourth consecutive time. This brought the upper target of the central bank’s rate up to 4 percent for the first time since January of 2008 during the global financial crisis. As for the future path of the central bank’s policy rate, Federal Reserve (Fed) Chair Powell left room for flexibility but indicated that the Fed “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” While this might hint at a transition to a smaller rate hike in December, Powell went on to reiterate the “higher for longer” narrative that’s been developing, saying, “We still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.” U.S. Treasury yields were up across the curve last week. The 2-year, 5-year, 10-year, and 30-year gained 33 bps (to 4.75 percent), 19 bps (to 4.38 percent), 14 bps (to 4.16 percent), and 4 bps (to 4.19 percent).

Equity markets struggled last week amid discussion of a higher end target rate for the Fed. The result was a swift sell-off in riskier equities such as technology and consumer discretionary. The week’s stronger-than-expected employment report didn’t help the case for lower rates as strong employment data continued to make the case for further tightening and higher rates from the Fed. International equities stood out, particularly emerging market equities. Rumors via the New York Times and Financial Times of a move away from the Covid-19 zero policy in China lifted the market. Finally, earnings season remained mixed with earnings growing at a rate of just 2.2 percent in the third quarter, per FactSet. Major themes thus far have been mixed results from Covid-19 stocks, foreign exchange headwinds, travel momentum, and weaker ad spending. Energy continues to carry earnings this quarter; however, if the energy sector was excluded, earnings would have fallen 5.4 percent for the third quarter according to FactSet. Not surprisingly, energy, materials, and industrials were the best-performing sectors last week.

Last week’s data focused on the health of the manufacturing and services segment of the economy. The week also wrapped with the October employment report. But the most important news was the FOMC decision on Wednesday.

Tuesday saw the release of the ISM Manufacturing Index for October. Manufacturer confidence declined by slightly less than expected, and the index now sits at its lowest point since mid-2020—which signals headwinds for the manufacturing industry.

Wednesday was Fed day, as the Fed hiked the federal funds rate by 75 bps at its November meeting, which was in line with expectations. Fed Chair Powell indicated that the central bank is likely to hike again at its upcoming meeting in December as well as into 2023.

On Thursday, the ISM Services report for October was released. Service sector confidence fell by more than expected, but the index remained in expansionary territory despite the decline.

Finally, Friday saw the release of the employment report for October. More jobs than were expected were added in October and the September report was revised up as well. The unemployment rate increased by more than expected during the month yet remained low on an historical basis.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	–3.31%	–2.59%	–19.83%	–18.47%
Nasdaq Composite	–5.62%	–4.63%	–32.60%	–33.91%
DJIA	–1.38%	–1.00%	–9.33%	–8.97%
MSCI EAFE	1.24%	1.17%	–22.27%	–23.36%
MSCI Emerging Markets	4.68%	4.36%	–26.34%	27.99%
Russell 2000	–2.53%	–2.52%	–18.95%	–25.17%

Source: Bloomberg, as of November 4, 2022

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	–0.37%	–16.02%	–16.53%
U.S. Treasury	–0.59%	–14.81%	–15.16%
U.S. Mortgages	–0.07%	–14.95%	–15.44%
Municipal Bond	0.33%	–12.58%	–12.10%

Source: Morningstar Direct, as of November 4, 2022

What to Look Forward To

This week’s data will focus on inflation and the consumer.

Thursday will see the release of the Consumer Price Index for October. The report is set to show continued inflationary pressure, with headline prices set to rise by 0.7 percent.

Friday will see the release of the preliminary University of Michigan consumer sentiment survey results for November. Consumer sentiment is set to decline modestly, which would break a four-month streak of improving confidence.