Weekly Market Commentary – 9/2/2022

-Darren Leavitt, CFA

Global financial markets continued to sell off on hawkish rhetoric from the Federal Reserve and on the realization that rates will likely be higher and in place for a longer time horizon. Cleveland Fed President Loretta Mester reinforced the notion by suggesting the terminal rate could be higher than 4% at the beginning of 2023 and indicated she thought the idea of a rate cut in 2023 was unlikely. Elevated readings in the Eurozone’s Producer Price Index, up 37.9% year-over-year, and Consumer Price Index, up 9.1% year-over-year, increased the likelihood that the ECB would raise its policy rate next week by 75 basis points. Economic growth concerns were stoked further by the announcement of Covid lockdowns in China’s Hebei, Chengdu, and Shenzhen provinces. Relations between the US and China continue to be complicated.

NVidia shares sold off significantly after the company announced that millions of dollars of revenue would be subject to the US government imposing new license requirements for selling its A100 and A400 chips to China and Russia. The Philadelphia Semiconductor Index fell 7.1% for the week. Late in the week, the Biden administration announced that Trump-era tariffs would likely remain in place. China also warned of consequences if Arizona Governor Ducey were to visit Taiwan.

The S&P 500 lost 3.3% and fell below its 50-day moving average. The Dow gave back 3%, the NASDAQ fell 4.2%, and the Russell 2000 shed 4.7%. Growth stocks took the brunt of the selloff, but value issues were not immune to the weak tape. The Materials and Information Technology sectors were the hardest hit, losing 5%.

The US Treasury market continued to have wild fluctuations in rates. The curve steepened over the week, with the 2-year note yield falling one basis point to 3.4%, while the 10-year bond yield increased sixteen basis points to close the week at 3.2%.

The commodity complex was also quite volatile. WTI fell 6.4% on the week to close at $86.91 a barrel. News that the Eurozone was well ahead of stockpiling natural gas hit markets. A G-7 meeting that put a price cap on Russian oil was met with the announcement that Gazprom’s Nord Stream 1 pipeline would continue to be closed for technical issues related to an oil leak- the news was cited as the reason the markets sold off on Friday. The slower economic growth narrative hit copper, too; it fell 7.9% on the week to $3.41 an Lb.

The US dollar remained in vogue and had significant gains against the major crosses. The Japanese Yen fell to a 24-year low against the greenback breaching the 140 level. Of note, Bitcoin traded below $20k to $19,809.

The August Employment Situation Report highlighted economic data for the week. The report was weaker than July’s but showed no signs of an economic recession in the labor market. Non-Farm Payrolls increased by 315k versus the expectations of 300k. Private Payrolls increased by 308K, higher than the consensus estimate of 280k. The Unemployment rate ticked higher to 3.7% from the prior reading of 3.5%. Average hourly earnings increased by 0.3% versus expectations of 0.5%. Earnings have increased 5.2% on a year-over-year basis. The Average work week decreased to 34.5 hours from 34.6 hours. The Labor Participation rate increased to 62.4% from 62.1%. High-frequency employment data also showed a healthy labor market. Initial claims came in at 232k, and Continuing Claims were 1438k. ISM Manufacturing for August was unchanged from July at 52.8%. We get ISM Non-Manufacturing early next week. The Conference Board’s Consumer Confidence Index increased nicely in August with a reading of 103.2; the last reading was 92.4%. Weekly Mortgage Applications showed a decline of 3.7%.

Investment advisory services offered through Foundations Investment Advisors, LLC (“FIA”), an SEC registered investment adviser. FIA’s Darren Leavitt authors this commentary which may include information and statistical data obtained from and/or prepared by third party sources that FIA deems reliable but in no way does FIA guarantee the accuracy or completeness.  All such third party information and statistical data contained herein is subject to change without notice.  Nothing herein constitutes legal, tax or investment advice or any recommendation that any security, portfolio of securities, or investment strategy is suitable for any specific person.  Personal investment advice can only be rendered after the engagement of FIA for services, execution of required documentation, including receipt of required disclosures.  All investments involvement risk and past performance is no guarantee of future results. For registration information on FIA, please go to https://adviserinfo.sec.gov/ and search by our firm name or by our CRD #175083. Advisory services are only offered to clients or prospective clients where FIA and its representatives are properly licensed or exempted.