Holbrook Insights

Weekly Market Update- August 29, 2022

Equity markets sold off heavily last week as the Fed took center stage at the Jackson Hole retreat. Most of the selloff came on Friday following Powell’s comments regarding rate hikes to push inflation toward the Fed’s long-term target of two percent over the economic cycle. While this move was expected, the Chairman’s live press conference surprised many investors. 

On Wednesday, the preliminary July durable goods orders report was released. Headline durable goods orders growth came in below expectations, with the report showing that orders were unchanged against calls for a 0.8 percent increase. This miss was due to a slowdown in volatile transportation orders during the month. Core durable goods orders, which strip out the impact of transportation, increased 0.3 percent against calls for a 0.2 percent rise. Core durable goods orders are often viewed as a proxy for business investment, so this solid result signaled continued business spending.

Weekly Market Update- August 22, 2022

Equity markets took a break from their recent rally last week as commentary from Fed members James Bullard and Esther George signaled a continued need to keep rates elevated to further slow inflation down. As a result, the inflation-oriented sectors—consumer staples, utilities, energy, and health care—held up best while communication services, materials, REITs, and financials underperformed. Communication services has seen a slew of streaming providers raise prices due to a recent focus on monetization and content.

On Wednesday, the FOMC meeting minutes from the Fed’s July meeting were released. The central bank hiked the federal funds rate by 75 bps at this meeting, and economists and investors eagerly anticipated the release of the minutes to gain hints on the future path of monetary policy. Unfortunately, the minutes did not contain significant hints on whether the central bankers were leaning toward a 50 bps or 75 bps interest rate hike at the Fed’s September 21 meeting.

Weekly Market Update - August 15,2022

Equity market rallied lastweek as both consumer and producer inflation came in lower than expected, offering the first sign
of relief from rising prices since the second quarter of 2021. While inflation remains well above long-term norms, this represents the first hint of potential easing moving forward. It’s important to note that a main contributor to the inflation report was a monthly decline in fuel prices, which are more volatile than items such as housing and impact the inflation data on a lag. Despite the softer data on inflation, performance was mixed

On Wednesday, the July Consumer Price Index report was released. Consumer inflation came in below expectations, with headline prices remaining unchanged in July against calls for a 0.2 percent increase. On a year-over-year basis, consumer prices were up 8.5 percent, below the 9.1 percent increase in June and economist estimates for an 8.7 percent rise. Much of the slowdown in headline prices was due to falling gas prices; however, even core inflation showed signs of moderating. Core consumer prices, which strip out energy and food prices, increased 0.3 percent, well below the 0.7 percent increase in June and economist estimates for a 0.5 percent rise.

Weekly Market Update- August 8, 2022

The Federal Reserve (Fed)’s second consecutive 75 basis point (bp) rate hike on July 27, all eyes now look toward the September Federal Open Market Committee (FOMC) meeting. With inflation remaining near 40-year highs, the markets and Fed officials are expecting continued rate hikes through year-end. St. Louis Fed President James Bullard expressed his expectations for another 1.5 percent of rate increases for the year. “I think we’ll probably have to be higher for longer in order to get the evidence we need to see that inflation is actually turning around on all dimensions and in a convincing way coming lower, not just a tick lower here and there,” Bullard explained.

On Friday, the July employment report was released. The report showed that more jobs were added during the month than expected, with 528,000 jobs created against 250,000 anticipated. This result was the best month for hiring since February and signals continued high levels of labor demand. The underlying data also showed signs of improvement. The unemployment rate fell from 3.6 percent to 3.5 percent against calls for no change, which brought the unemployment rate to the lowest level since the start of the pandemic and matches the 50-year low we saw in February 2020. The strong job market is expected to support the Fed’s plans for tightening monetary policy throughout the year to combat inflation.

 

Weekly Market Update - August 1, 2022

The Federal Reserve (Fed) raised interest rates by another 75 basis points (bps) at last week's FOMC meeting, bringing its target range to 2.25 percent to 2.50 percent. Inflation remains stubbornly high and conversation among market participants is becoming increasingly focused on the timing—rather than the likelihood—of a potential recession. Some believe the U.S. may already be in a recession after seeing two quarters of economic contraction as measured by gross domestic product (GDP). Others, including Fed Bank of Atlanta President Raphael Bostic, maintain hope that such a development can still be avoided if the job market remains robust.
 
On Tuesday, the June housing starts and building permits reports were released. Housing starts fell 2 percent against calls for a 2 percent increase, while permits dropped 0.6 percent against calls for a 2.7 percent decline. Although these reports can be volatile on a monthly basis, this marks two months in a row with declining starts and three consecutive months with falling permits. Despite the recent decline in new home construction, starts and permits remain well above pre-pandemic levels, supported by low levels of supply of existing homes for sale and rising housing prices. Looking ahead, most economists expect to see a further slowdown in the housing sector due to rising mortgage rates.

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.