U.S. and International Equities
Domestic Markets Finish Lower But Emerging Markets Shines
Stocks finished lower after Federal Reserve (Fed) Chair Powell’s comments on Wednesday caused traders to sell off domestic equities mid-week. Market participants expected Powell to signal a slower pace of rate hikes beginning in December, however the Chairman stated that it is “very premature” to discuss a pause in rate hikes. Moreover, Powell stated that interest rates may need to rise above the 4.6% that was previously estimated given inflation pressures.
Emerging markets caught a welcomed bid this week. On Friday, the Shanghai Composite finished over 2% higher, and the Hang Seng Index (Hong Kong) rallied nearly 5.5% as Bloomberg reported China is working toward curtailing regulations that penalize airlines for carrying COVID-19 positive passengers. In addition, China’s former chief epidemiologist stated he expects “big and substantive” changes to the country’s zero-COVID-19 policy, though these comments were later retracted.
During Q3 conference calls, many companies are highlighting a pickup in macro uncertainty. Europe and China are key areas of concern as the strong U.S. dollar remains an outsized headwind that could affect Q4 results. Additionally, firms are continuing to call out inflation and supply chain concerns, even as supply chains are showing signs of improvement.
Fixed Income Mostly lower
The Bloomberg Aggregate Bond Index finished the week lower as yields increased as traders sold off bonds given Chairman Powell’s comments on Federal Reserve policy this week. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, lost ground for the week, falling in sympathy with their equity counterparts.
Commodities Higher as Natural Gas Remains Volatile
Oil and natural gas prices finished the week higher. As discussed last week, many commodity analysts have noted that 2022 has seen much volatility for natural gas prices and this week proved to be no exception. The U.S. market for natural gas has shifted from concerns about tight supplies amid the geopolitical landscape now to the potential for lower heating fuel demand given warmer weather forecasts. The major metals, gold and silver, finished higher.
Economic Weekly Roundup
The Fed ended its two-day Federal Open Market Committee (FOMC) meeting on Wednesday, and the outcome was broadly in line with market expectations. As expected, the Committee raised short-term interest rates by 0.75% to take the fed funds rate to 4.0% (upper bound). The 0.75% increase was the fourth in a row and only the fifth over the past 30 years. The Fed reiterated its desire to continue to hike rates to a “sufficiently restrictive” level and keep rates there until there is compelling evidence that inflation is on course to return to its 2% target. Importantly though, the Committee included language in its statement that may indicate that the most recent string of 0.75% rate hikes could transition to smaller hikes at subsequent meetings.
October Eurozone Inflation
Eurozone inflation was up 10.7% year-over-year for the month of October, which was notably higher than the 9.9% year-over-year increase in September. Energy prices continue to be the biggest driver across the region, pushing consumer prices up 1.5% month-over-month. LPL Research believes that investors should be cautious about the impact from the accelerating rate of inflation.
Weekly Employment Report
Continuing claims for unemployment insurance for the latest week came in above economists’ expectations, whereas initial claims came in below expectations for the third straight week. Labor market conditions remain tight even though there are some signs of slowing job growth, increasing layoffs, and higher unemployment.
The following economic data and potentially market-moving events are slated for the week ahead:
- Monday: Consumer credit (Sep)
- Tuesday: National Federation of Independent Business October Small Business Index
- Wednesday: Wholesale inventories (Sep)
- Thursday: Weekly initial and continuing unemployment claims, Consumer Price Index (Oct), hourly earnings (Oct), average workweek (Oct)
- Friday: University of Michigan Consumer Sentiment (Nov)
Next week, over 20 companies are expected to report earnings as we head down the home stretch of Q3 earnings season.
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