Holbrook Insights

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.

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.