Holbrook Insights

Weekly Market Update - July 25, 2022

U.S. Treasury yields were down last week as expectations of a recession and a potential slowdown in rate increases from the Federal Reserve (Fed) were reflected in fixed income markets. Economic data releases suggested a slowing of the global economy. The housing sector showed signs of softening with the North American Homebuilders Index, housing starts, and existing home sales all coming in lower than expected.
 
Global equity markets rallied last week, with bond yields coming down as central banks continue to examine policies to combat inflation. The softening data in the U.S. and Europe indicate inflation may be peaking and that central bank policy could be closer to the end of the tightening cycle. There were also sighs of relief in both U.S. and European markets. In the U.S., better-than-expected Tesla (TSLA) and Netflix (NFLX) earnings gave way for the potential for earnings to be more robust than initially expected.

Weekly Market Update - July 18, 2022

Last Wednesday, U.S. inflation numbers for the month of June were released and the Consumer Price Index (CPI) report exceeded expectations with an increase of 9.1 percent year-over-year. This upside surprise in prices is keeping the Federal Reserve (Fed) on its toes in advance of its July 26–27 meeting; some market participants are expecting the Federal Open Market Committee (FOMC) to increase rates by a full percentage point, while other Fed officials are trying to reign in those expectations.
 
On Friday, the June retail sales report was released. Retail sales increased more than expected, with headline sales increasing 1 percent against forecasts for a 0.9 percent increase. This was an encouraging rebound for retail sales growth after a 0.3 percent drop in sales in May, indicating that the slowdown was temporary rather than the start of a sustained slowdown.
 
Consumer spending held up well during the first half of the year despite headwinds created by inflation, stock market sell-offs, and worsening consumer sentiment, which is an encouraging sign that consumers remain willing and able to go out and spend.

Weekly Market Update - July 11, 2022

Following last week’s release of the Federal Reserve (Fed)’s June meeting minutes, all eyes now turn toward the July meeting. With core inflation remaining stubbornly higher than the Federal Open Market Committee (FOMC) would like, another large rate increase could be in the cards.
 
Two Fed officials, Fed Governor Christopher Waller and St. Louis Fed President James Bullard, have already signaled support for a 75 basis point (bp) hike in July. “Inflation is just too high and doesn’t seem to be coming down,” said Waller in a recent webinar. “We need to move to a much more restrictive setting in terms of interest rates . . . and we need to do that as quickly as possible.”
 
Markets rallied in the holiday shortened week as better-than-feared sentiment stemming from a number of areas—including easing commodity prices, a better-than-expected June employment report, and a stronger sales report from Samsung—appeared.
 
Oil and copper were both down last week, posting drops of 3.4 percent and 2.2 percent, respectively. Friday’s employment report showed 372,000 jobs added versus 265,000 expected, helping to lift consumer discretionary and financials, which have recently been softer due to demand and credit concerns.

Weekly Market Update - June 27, 2022

After the Federal Open Market Committee (FOMC) raised the federal funds rate 75 basis points (bps) at its June meeting, Federal Reserve (Fed) Chair Jerome Powell testified to Congress on the state and development of the U.S. economy. The conversation focused on what tradeoffs the Fed is willing to make and how it would plan to act if fears of stagflation—in which the economy would see negative growth, heightened unemployment, and elevated inflation—came to fruition.
 
Last week was quiet in terms of hard economic data and we saw small hints of easing inflation. Markets bounced back from the worst week of selling since March of 2020, largely prompted by modestly lower commodity prices amid the expectation that demand will soften.

Weekly Market Update - June 13, 2022

The U.S. Department of Labor released its May inflation numbers last Friday. The Consumer Price Index (CPI) report showed that inflation increased 8.6 percent year-over-year, coming in above analyst expectations for an 8.3 percent increase.
 
Global equity markets sold off as a higher-than-expected inflation report on Friday led to added concerns about persistent inflation and the need for more aggressive actions from global central banks. The headline and core reports showed surprising results of 1.0 and 0.6 percent, up by 0.3 and 0.1 percent, respectively. While we’ve seen inflation for goods slow, food and energy continue to accelerate their pace of inflation as supply chain disruptions—caused by the Russia-Ukraine conflict, Covid-19 lockdowns, and weather—create a challenged supply environment. Goods have slowed as price increases of household furnishings, appliances, and new automobiles have eased.

Weekly Market Update - June 6, 2022

The U.S. Department of Labor reported that employers added 390,000 jobs in May. At the same time, the unemployment rate remained flat at 3.6 percent. These strong employment conditions bolster the Federal Reserve (Fed)'s ability to move forward with aggressively hiking interest rates to hamper inflation. With market conditions and Fed officials' sentiments pointing to support for consecutive 50 basis point (bp) increases at the June and July meetings, focuses now shift to the September meeting and where interest rates are expected to go from there. Speaking on the matter, Fed Bank of Cleveland President Loretta Mester offered her thoughts. “If by the September FOMC meeting the monthly readings on inflation provide compelling evidence that inflation is moving down, then the pace of rate increases could slow. But if inflation has failed to moderate, then a faster pace of rate increases could be necessary,” she said. “The risk of recession has risen, but because underlying aggregate demand momentum and the demand for labor are so strong, a good case can still be made.”

Weekly Market Update - May 23, 2022

As the U.S. continues to battle inflation near 40-year highs and equity investors become increasingly spooked, the Federal Reserve (Fed) reminds us that corralling inflation is its primary goal. 
 
The S&P 500 fell 3 percent last week, marking the 7th straight week of declines and the longest streak of weekly declines since 2001. The index flirted with falling in bear market territory (a total decline of 20 percent from its peak) but rallied slightly on Friday to avoid the mark. The market continues to deal with inflation and the Fed’s policy concerns. We also saw consumer spending trends—which shifted from big ticket items such as outdoor furniture and electronics to consumer staples—hurt retail chains such as Walmart (WMT) and Target (TGT) last week. 

Weekly Market Update - May 16, 2022

The U.S. Senate confirmed Federal Reserve (Fed) Chair Jerome Powell to his second term last week as the U.S. continues to grapple with its highest rate of inflation in 40 years. With the FOMC June meeting approaching, incoming economic data will be closely monitored to better gauge potential interest rate paths moving forward. Fed Bank of Cleveland President Loretta Mester indicated her support for continuing an aggressive tightening policy in the coming months. "Given economic conditions, ongoing increases in the Fed funds rate are called for, and unless there are some big surprises, I expect it to be appropriate to raise the policy rate another 50 basis points [bps] at each of our next two meetings.”

Weekly Market Update - May 2, 2022

As we approach the Federal Reserve (Fed)'s May 3-4 meeting, last week's GDP report for the first quarter of 2022 is a poignant reminder of the fine line the Fed must walk to appropriately balance the risks of continued inflation and the potential for a rate-induced recession. The production decline of 1.4 percent on an annualized basis marks the weakest quarter since spring of 2020 when the Covid-19 pandemic initially kicked off in the United States. Still, the underlying data and strength of consumers and businesses point to continued growth for the U.S.—if supply chain issues continue to ease and the pandemic remains at bay.

Weekly Market Update - April 18, 2022

Inflation increased 8.5 percent year-over-year in March, according to data released last week. Faced with this multidecade high, markets eagerly await the Federal Reserve’s (Fed’s) May meeting to see what’s in store for interest rates and the Fed’s balance sheet.
 
The S&P 500 fell for the second straight week. Investors continue to question how the Fed will navigate a soft landing for the economy with inflation and expectations for inflation reaching historic highs. Earnings season got rolling, with JPMorgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley among notable banks reporting.