Economic Update 11-28-2022 

• On a Thanksgiving-shortened week, economic reports included surprisingly positive data from durable goods orders and new home sales, and improvement in consumer confidence, while jobless claims rose a bit.
• Global developed market equities gained last week, while emerging markets fell back, due to declines in China. Bonds fared positively, as long-term interest rates declined. Commodities fell back, mostly due to a drop in crude oil prices.

U.S. stocks gained in the lower-volume holiday-shortened week. By sector, conditions were mixed, with utilities and materials each rising by 3%, while energy brought up the rear showing a minimal increase. Real estate gained 2%, around the middle of the pack.

Economic Update 11-21-2022 

• Economic data for the week included a gain in retail sales, while industrial production fell back slightly, and several housing metrics continued their multi-month declines. Regional manufacturing indexes were mixed, showing sharply divergent results. The Index of Leading Economic Indicators also continued a string of negative readings—signaling higher recession risk.
• Global equity markets were mixed, with declines in the U.S., emerging markets and Japan, while greater Europe saw gains. Bonds fared decently with mixed interest rate changes across the yield curve. Commodities fell back in keeping with a sharp drop in the price of crude oil last week.

U.S. stocks were pulled down last week by holiday sales warnings from Target, which led to fears of weakening retail trends for the holiday season, although other retail firms offered mixed to better results. A layoff announcement from Amazon was also taken negatively in that space as a potential pre-recessionary warning. In the overall down week, defensive sectors consumer staples, health care, and utilities led the week with gains of over a percent, while consumer discretionary stocks led the downturn, with a decline of nearly -3% (reflecting the retail concerns). Materials, energy, and financials also fared negatively, as did real estate.

Economic Update 11-16-2022 

• Economic data for the week included consumer price inflation coming in still higher relative to history and the Fed’s target, but at a slower pace than last month. The widely-anticipated mid-term elections resulted in a likely divided government, although vote counts were still ongoing by the end of the week. Consumer confidence again fell back, while jobless claims were little changed.
• Global equity markets experienced a strong week, buoyed by the positive CPI inflation surprise, with foreign stocks especially benefitting from a drop in the value of the dollar. Bonds also fared well as long-term interest rates pulled back. Commodities were mixed, with crude oil lower and metals higher.

U.S. stocks continued a volatile fall week, with inputs driven by Tuesday’s mid-term election results (which took some time to tabulate and with results not as conclusive for a divided government as some had hoped) and Thursday’s consumer price index reading, which showed some improvement downward on a trailing 12-month basis. These are two items that financial markets have been waiting for clarity on and better news about, with uncertainty always being closely tied to volatility. That the latter would fuel a positive market response was not a huge surprise. Additionally, and perhaps even more importantly, a member of the Fed noted that 4.5% might be an appropriate place for a pause in rate hikes, which goes along with the lower inflation reading. With the current fed funds rate at 3.75-4.00%, that’s not far away. The sharp Thursday gain was the best single day in over two years.

By sector, growth stocks saw a strong rebound last week, led by technology and communications, up 9-10% each. Speculation was the winning approach last week, with technology firms with no profits outperforming higher quality companies. Defensive sectors health care and utilities came in last, but still rose over a percent for the week. Real estate rallied by over 7% along with interest rates falling back.

Economic Update 11-07-2022 

• Economic data for the week included the Federal Reserve continuing its robust pace of interest rate increases—last week again by 0.75%. The ISM manufacturing and services surveys declined, but remained in expansionary territory. Labor reports continued to show positive growth, through nonfarm payrolls and job openings, while the pace of wage growth decelerated a bit.
• Global equity markets were mixed, with declines in the U.S. but positive returns overseas—notably in emerging markets. Bonds fell back along with several central bank interest rate increases. Commodities rose along with higher energy prices, due to near-term concerns about inventories.

U.S. stocks started the week optimistically, and the FOMC meeting led to a quick uptick in stock prices, followed by a sharp drop of -2.5% as the press conference hawkishness disappointed financial markets. The employment situation report on Friday was closely watched for labor market tightness, with metrics remaining surprisingly strong. There were announcements of some hiring pauses, notably by Amazon, which also pulled down sentiment.

• Economic data for the week included Q3 GDP showing positive growth, slightly better than expected. Durable goods orders also experienced a positive month, as did personal income and spending for September. On the other hand, new home sales and various housing price metrics continued to see weakening trends.
• Global equity markets gained ground in developed countries last week, while emerging market indexes fell back, led by China. Bonds also fared positively last week, as longer-term interest rates eased from recent highs. Commodity prices were mixed.

U.S. stocks were mixed on the week, with results largely driven by company earnings—last week being a high-volume week for those reports. Thursday’s positive GDP report turned early stock gains into losses as investors expected the strength to further show the Fed that the economy can ‘handle’ rate hikes at a rapid pace, although hopes were still high otherwise that the Fed may pause sooner than later given the slowing in other data. The Elon Musk takeover of Twitter seemed to dominate financial news, but had minimal impact on broader markets.

Every sector but communications rose last week, led by financials, industrials, and defensive utilities—an unusual mix of cyclicals and defensives. Earnings reports for Q3 continued, with a third of S&P firms missing estimates thus far—technology and tech-related stocks hit especially hard. This included disappointing earnings results from Alphabet/Google and Microsoft, but Meta/Facebook even more so, with the stock price falling -25%. Amazon also fell back by nearly -15%, with a disappointing revenue and earnings outlook. In the case of Meta specifically, concern about revenue sensitivity has risen, with such a dependence on clicks, coupled with a rise in ‘anti-tracking’ sentiment from consumers, relative to Apple, for example, which manufactures physical products. Such distinctions become more important when the economy is slowing and the margin for error tightens. Revised forward-looking adjustments for revenue and profit margin, translating to earnings, can result in sharp reactions when earnings are announced at times like these.

Economic Update 10-24-2022

• Economic data for the week included a rise in industrial production, mixed regional manufacturing indexes, and a variety of weaker housing sales and sentiment reports. The index of leading economic indicators continues to lean towards a recession in coming months.
• U.S. equity markets saw sharp gains last week, due to stronger earnings and rising hopes for a Fed potentially slowing down on rate hikes, with foreign stocks also positive. Bonds fell back due to still-rising long-term yields. Commodities were mixed.

U.S. stocks saw gains last week with corporate earnings reports coming in better than expected. Additionally, a large batch of options expiring by the end of the week added to volatility. While comments from Fed members earlier in the week pointed to ongoing hawkishness, these were talked back later in the week with possible indications the Fed may slow or pause hikes pause early in 2023 to assess their impact thus far. Of course, such Fed comments aren’t made in a vacuum, and tend to be carefully worded when they are shared. Financial markets took this as a positive sign for better clarity on long-term yields. Every sector ended the week in the positive, led by energy stocks up 8%, followed by materials and technology. Real estate rose nearly 3% despite higher interest rates.

Earnings season for Q3 has begun, with several large firms in the financial sector having already reported. So far, rising loss provisions (a discretionary earnings item to a large degree) in expectation for recession have resulted in lowered earnings in that sector. Per FactSet, 20% of S&P members have now reported, with another half of the index reporting this coming week. Expectations have become more variable, with 115% earnings growth in energy barbelled by double-digit declines in financials, materials, and communications. As a whole, S&P 500 estimates for Q3 have fallen by a percent, but remain a positive 1.5% on a year-over-year basis, although nearly three-quarters of firms have surprised positively on an earnings and revenue basis. For the full 2022 calendar year, earnings growth is expected to be 6-7%, and rising to 7-8% for 2023. The current 12-month forward P/E is 15.6, just below the 10-year average, and right around the long-term average number.

• Economic data for the week included producer and consumer price inflation reports that continue to run hotter than expected—disappointing markets. Retail sales were little changed, although core sales saw slight nominal gains.
• Global stock markets lost ground as concerns continued around high inflation and potential recession, especially abroad. Bonds also declined as interest rates rose again in keeping with higher CPI readings. Commodities fell back due to higher anticipated domestic crude oil supplies.

U.S. stocks fell back to start the week, as new restrictions by the Biden administration limit Chinese access to American semiconductor technology, on top of global demand weakness already in the space. As the week progressed, concerns over inflation reports and the start of Q3 earnings season continued to weigh on sentiment. By sector, defensive health care and consumer staples fared best, with positive returns of over 1%, while consumer discretionary and technology each lost over -3%. Utilities and real estate also fell back upon higher interest rates.

Markets experienced an especially odd day on Thursday, coinciding with the closely-watched CPI report. Inflation continued to ‘run hot’, especially on the core side, and didn’t show the improvement investors have been hoping for. However, some economists have referenced this phase as likely peaking or close to peak, as opposed to no end in sight. The monthly CPI data has become the market’s key metric recently, being the catalyst for Fed expectations, then interest rates, and flowing to economic health and earnings. Early stock futures gains (with hope for a decent report), sentiment turned sharply lower upon release of the report (down over -2%), yet reversed and ended the day gaining over 2.5%. This was described as one of the most volatile intra-day changes in decades. The reasons for the sudden turnaround remain vague, but some signs point to computer trading based on technical support indicators. For example, the round level of 3500 for the S&P, which also fell very close to the spot where 50% of the Mar. 2020-Jan. 2022 rally had retraced back to (considered by technicians to be an important place). Investor sentiment is especially low, pointing to high levels of overall bearishness, which, similar to what happens with extreme bullishness on the other side, can lead to a fatigue in negativity. The question remains: where is the stock market low? As usual, it’s highly unlikely for anyone to get the timing right, but repeated tests of bottoming around the -25% mark without further deterioration are a positive sign.

Foreign stocks fell back to a similar degree as domestic in developed markets, with increasing concerns over a near-term recession in Europe continuing to dominate sentiment. To some extent, this has raised hopes for a pullback in central bank hawkishness. Emerging market equities were down more sharply, as Chinese stocks in particular fell by over -7% on the week. While the Communist Party Congress meeting having started and resulted in few surprises, a noted continuation of their zero-Covid policy into next year negatively weighed on global sentiment, as this keeps the risk of future economic closures high and unpredictable.

U.S. bonds fell back last week as the 2-year treasury yield reached 4.5% (a 15-year high) and 10-year treasury note rose to 4.00%, before leveling off. As credit spreads widened, governments outperformed corporates generally, with floating rate bank loans faring best. Foreign bonds lagged domestic, hampered by continued strengthening in the U.S. dollar.

The Bank of England continued its bond-buying program last week in an effort to pull down long-term yields to more manageable levels. The lack of stability has aligned closely with the lack of policy consistency, which has troubled markets. Several nations in Europe have been caught between the sharp desires to provide fiscal relief to citizens, particularly due to high energy prices, but realizing markets are no longer providing a free pass for unlimited government spending. The sharp rise in rates was deemed to pose a serious risk to financial stability, notably the large ownership of bonds by pensions and other institutional entities. This situation in England may be the first in a series of ‘cracks’ that could give global central banks pause. Already, several banks have slowed the pace of hikes down to quarter-percent increments, which was below expectations. This may provide signs of a potential peak in rate hike regimes, as fears of economic slowing have traditionally caused banks to reverse course (despite their protests this cycle that they’ll be hawkish until inflation is tamed).

Commodities fell back across the board last week, led by energy and precious metals. The price of crude oil fell by -8% to just under $86/barrel. Last week, fears of a Biden fuel export ban, intended to bring down gasoline prices, resulted in higher domestic inventories. This was coupled with continued concerns over the extended zero-Covid policy in China, which has the potential of keeping demand fragile into 2023. Ironically, as we know, lower commodity prices have a dampening effect on inflation readings, so this becomes a double-edged sword.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                    

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. 

Economic Update 10-10-2022

• Economic data for the week included the ISM manufacturing index falling further than expected, while ISM services were little changed and remained expansionary. A variety of labor statistics came in generally positive, at least enough so for markets to believe the Federal Reserve will remain hawkish in upcoming policy meetings.
• Global stock markets gained ground last week, as economic data started slower than expected, raising the odds of a ‘hard landing’ and, therefore, more tempered central bank interest rate hikes. Bonds were mixed, with credit faring positively, while governments pulled back. Commodities gained sharply as last week’s OPEC+ meeting resulted in oil production cuts—boosting spot prices.

U.S. stocks started Monday experienced their best day in months (up 3%) as weaker ISM manufacturing data helped raise recession odds, as well as the chances of the Fed pulling back on hawkish rate hikes. This was a nod back to the ‘bad news is good news’ theme the market occasionally reverts to, especially when Fed policy is involved. However, by Friday, a decent Sept. monthly jobs report was good news for the already-strong labor market, but bad news for those hoping the Fed might be holding back on future rate hikes, pulling equity sentiment down.

By sector, energy led the way, rising 14% on the heels of a spike in crude oil prices. Other strong sectors included industrials and materials, with gains over 2% for the week. Defensive sectors lagged, with a -3% drop in utilities, in keeping with higher interest rates. Real estate also fell back by over -4%, due to the same interest rate impact. Earnings season for Q3 is poised to begin this coming week, with estimates from FactSet still showing growth, yet to a lesser degree than a few months ago.

Foreign stocks gained last week, generally in line with domestic stocks, with emerging markets outperforming developed markets slightly. The emerging market response was due to a 10%+ in Brazil, based on first round election results ending tighter than many anticipated—this is expected to cause both sides to embrace less extreme and more orthodox ‘middle’ policies favored by markets. Chinese stocks were quiet, as market closed for a holiday week, although new lockdowns in several cities again raised pandemic concerns.

U.S. bonds fell back as interest rates again crept higher, due to economic data during the week not likely poor enough to derail central bank rate hikes. Floating rate bank loans and high yield fared best, with gains of several percent, helped by stronger equities and rising yields, while treasuries fell back. Developed market foreign bonds also declined, not helped by a stronger dollar, while risk-taking was a catalyst for gains in emerging market bonds.

Commodities gained ground last week, led by a significant recovery in energy, and metals rising by several percent. The price of crude oil rose over 16% to just under $93/barrel. The key catalyst was the OPEC+ meeting held last week, resulting in a cut of 2 mil. barrels/day, which exceeded market expectations of 500k-1 mil. barrels. However, the net cut may be less considering lower production levels currently in several nations. The OPEC+ action highlights continued unpredictability, fueled by poor U.S.-Saudi relations following the death of journalist Khashoggi, and leading to U.S. requests for price relief falling on deaf ears. Russia fares well with production cuts, with higher prices scaling up additional revenue. As a result, the U.S. may conduct an end around via loosening sanctions against Venezuela or other measures to raise global petroleum production.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                   

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. 

Economic Update 10-03-2022

• Economic data included no revisions in the still-negative Q2 U.S. GDP report. Durable goods fell back, as did home prices in several national indexes. Consumer confidence measures were mixed, while jobless claims improved.
• Global equity markets fell back again, as investor moods were dampened by continued corporate negativity and higher interest rates, with financial concerns in the U.K. a key catalyst. Bonds declined as yields rose across much of the treasury curve. Commodities were mixed with crude oil prices ending slightly higher for the week.

U.S. stocks fell back again last week, and September ended negatively—true to historical form, unfortunately. In addition to financial turmoil in England (discussed below) carrying over to other developed nations, explosions that damaged the Nord Stream European gas pipeline, and a hurricane making landfall in Florida added the potential for disruptions. By sector, only energy ended with a gain (2%), while utilities suffered the most (-9%), on higher interest rates and perceived hurricane effects. Real estate also lost -4%, in keeping with most other sectors. Negative feedback from Apple and Nike in regard to upcoming global slowing were closely-responded to by investors.

The Dow finally reached -20% bear market territory last week, to join the S&P and NASDAQ, although that index is generally irrelevant from the standpoint of broader stocks (better measured by the S&P). But, it tends to be mentioned in the mainstream media frequently due to its century-plus historical legacy. Interestingly, the VIX index (which is the implied standard deviation on the S&P 500 based on options pricing) has risen relatively gradually. After trading between 20-30 most of the past few months, it’s again approaching 35. On the positive side, from a contrarian standpoint, high VIX levels have provided decent equity buying opportunities over the following 12- and 24-month periods. This is not saying this fall’s volatility has ended—both October outright and the lead-up to mid-term elections have provided historical uncertainty. However, the three months of Q4 have been historically the most positive for equities.

Economic Update 9-27-2022

• The U.S. Federal Reserve raised rates again to the degree expected, in efforts to combat inflation. Economic results for the week included mixed housing data, with sharply higher starts coupled with weaker home-builder sentiment. The index of leading economic indicators continued to fall, reaching an important recession warning signal.
• Global equity markets fell back on the week, as rising central bank policy rates fueled fears the economy will ‘break’ and tip into recession. Bonds declined as well, with yields ticking up across the maturity curve to multi-year highs. Commodities fell back broadly upon the same recession fears and more direct concerns of lower demand.

 U.S. stocks were mixed early in the week, with investors anticipating the Wed. FOMC meeting. However, a disappointing report from Ford caused the market to negatively react to potentially more difficult conditions to come, similar to FedEx the prior week. The Fed meeting itself, the hawkish dot plot, and press conference caused several back-and-forth swings in market sentiment before declining further late in the week, as markets assumed ongoing rate hikes would indeed ‘break’ the economy, pushing it into recession. Several well-watched Wall Street strategists downgraded market expectations for the rest of the year, which further soured market sentiment. Every sector lost ground, led by energy and consumer discretionary, which were down 7-9%. The usual defensive sectors, utilities, staples, and healthcare, on the other hand, fell lesser 2-3%. Real estate was down -6% with the headwind of higher interest rates, which continue to challenge financing costs.

Relative to the Jan. 3 peak, the S&P 500 initially troughed at -23% on June 16, before rebounding sharply through mid-August. Now, it’s fallen back to nearly the same place, which could prove to be an important technical level. It’s worth a reminder that historical pre-recession bear markets, at least in the modern era, experienced a median peak-to-trough decline of around -25% to -30%. (By median, this implies some bears were less severe and a few more severe, always causing concerns that the current bear is an especially ‘bad’ one. However, those worse than -30% tend to be more of the structural variety, or associated with sharply overheated asset or credit levels.

Economic Update 9-12-2022

• On a holiday-shortened week, economic data for the week included the ISM services index strengthening, and mixed results for jobless claims.

• Global equity markets gained last week, as central bank actions and member comments solidified a commitment to fighting inflation without overly damaging the global economy, in addition to inflation pressures themselves cooling. Bonds were mixed, with treasuries down due to higher rates, and high yield seeing gains. Commodities were mixed, with energy falling back due to natural gas prices, while crude oil was little changed.

U.S. stocks gained ground last week, in a reversal of recent negativity, led by lower energy prices and well-accepted Fed comments about the ability to achieve a soft landing. Every sector was in positive territory, led by most cyclical consumer discretionary and materials, each up over 5%. Energy lagged, up less than a percent. Real estate also gained several percent, despite higher longer-term interest rates, which have been a headwind for the group.

Foreign stocks came in a bit behind U.S. stocks, with Europe and the U.K. several percent higher, while gains in Japan and emerging markets were more tempered. More solidified plans by several European nations (such as household energy cost caps in the U.K.) in handling the energy crisis resulting from gas shortages appeared to improve sentiment. The magnitude of some fiscal aid is approaching or exceeding that of the Covid response. The ECB raised interest rates by 0.75% on Thurs., which, coupled with hawkish language, has raised expectations for further hikes later in the year. Chinese producer price inflation fell unexpectedly, which helped global sentiment later in the week.

Economic Update 8-30-2022

• Economic data for the week included a slight upward revision in Q2 GDP, good results from consumer sentiment and jobless claims, little change in durable goods orders, while housing data continued to show weakness.
• Equity markets fell back in the U.S. and developed foreign markets, while emerging markets fared positively. Bonds pulled back due to higher interest rates across the yield curve. Commodities gained primarily due to higher prices for crude oil and grains.

U.S. stocks lost ground on net, with rising oil prices reigniting inflation concerns, unsurprising economic data, although late summer tends to feature lower volume than usual. The week ended with fears of interest rates remaining higher after Fed Chair Jerome Powell’s speech at the Jackson Hole gathering—in fact, the hawkishness of the comments caused an over -3% drop in financial markets. Every sector except energy (which gained 4%) lost ground last week, led by technology and communications. Real estate also fell back by -4% upon higher interest rates.

Economic Update 8-22-2022

• Economic data for the week included strength in industrial production, little change in retail sales, and mixed results from several regional manufacturing surveys. Housing data also continued a string of weak monthly reports.
• Stock markets fell back globally, with U.S. equities faring a bit better than Europe and Asia, and inflation remaining top of mind. Bonds fell back due to rising interest rates across the yield curve, with foreign bonds negatively affected by a continued strong U.S. dollar. Commodities fell back broadly, with the exception of natural gas, buoyed by hot weather and geopolitical constraints.

U.S. stocks fell back, reversing some positivity from the prior week as more hawkish Fed member rhetoric pointed to inflation still posing a significant threat. By sector, defensive consumer staples and utilities led the way, as did energy, each with small gains. Communications and materials lagged the most, with declines of at least 2%, with the former brought down by Meta Platforms/Facebook. Real estate was also down around -2%, being stymied by higher interest rates.

Economic Update 8-15-2022

• Economic data for the week included consumer price inflation coming in little changed on the headline side, while producer price inflation declined on a headline level. Consumer sentiment improved more than expected.
• Global equity markets rose sharply last week, as slowed inflation results led to positive sentiment. Bonds fared positively, with little change in rates, but tighter credit spreads. Commodities gained across the board, helped by a weaker dollar.

After a lackluster start to the week, U.S. stocks were up sharply on Wed. onward after the monthly CPI report showed a flattening in headline prices, and core CPI not getting significantly worse. The search by markets for an inflation peak translates directly to the path the Fed may take in upcoming meetings, such as whether the Sept. FOMC rate hike will be 0.75%, 0.50% (consensus base case), or 0.25%. From a technical standpoint, markets have upwardly retraced almost 50% of the early 2022 decline, which has generated more bullish sentiment. For the chartists out there, a key question has been whether an upward ‘breakout’ continues to take hold from this point. Every sector gained ground last week, led by energy, materials, and financials, all gaining over 5%. Defensive sectors consumer staples and health care lagged with gains under 2%. Real estate rose over 4% on the week as well.

Economic Update 7-25-2022

• Economic data for the week included weakness in housing markets—seen in disappointing results for existing home sales, housing starts, and homebuilder sentiment. The index of leading indicators continued a string of monthly declines, and jobless claims rose.
• Global equities experienced gains again last week, with foreign markets leading U.S. Bonds fared positively as well, as long-term interest rates tempered, and foreign debt was helped by a weaker dollar. Commodities were mixed with metals recovering, but grains prices falling with higher expected imports from war-torn Ukraine.

U.S. stocks fared positively again, with lackluster economic data pointing to the idea the Fed may not need to raise rates as aggressively as feared (such as an upcoming week increase of potentially 0.75% rather than 1.00%), as well as continued negative sentiment being indicated by low equity ownership and high cash levels, pointing to a potential turnaround. After a positive start Monday, stocks turned mildly negative upon a report that Apple is slowing hiring. In fact, this is how recessions can become self-fulfilling, with companies not wanting to be left holding the bag, so begin the pare back first. The Senate vote in favor of the Chips for America Act, which provides $52 bil. in domestic subsidies for computer chip foundry production and tax credits, boosted tech stocks (notably semiconductors) early in the week.

Economic Update 7-19-2022

• Economic data for the week included both producer and consumer inflation coming in higher than expectations, and continuing the string of multi-decade highs, which have weighed on business and consumer sentiment. Jobless claims also ticked up again, off of cyclical lows. Retail sales also came in stronger than expected, as did consumer sentiment (with lower long-term inflation expectations).
• Global equity markets were down on net for the week, with mixed reactions to economic and inflation data. U.S. bonds gained ground as yields fell back and the treasury curve inverted; foreign bonds were held back by a strong U.S. dollar. Commodities fell back due to continued recession concerns.

Economic Update 7-11-2022

• On a holiday-shortened week, economic data included deceleration in some economic indicators, but not to the point of a feared slowdown as of yet. These included weaker, but still-strong showings from ISM services and JOLTs job openings, as well as a decent June employment report.
• U.S. equity markets gained ground last week, offsetting declines in foreign markets, which are faced with deeper near-term energy struggles. Bonds fell back as interest rates rose broadly, upon lack of slowing needed to justify lower recessionary yields. Commodities continued to fall back from highs, notably in crude oil and natural gas.

Economic Update 6-27-2022

• Economic data for the week included a drop in existing home sales offset by stronger sales for new homes. Consumer sentiment fell to an all-time low, although long-term inflation expectations improved (declined) from an earlier report.

• Global equity markets recovered sharply last week with sentiment improving, as inflation may be showing signs of slowing. Bonds also fared positively, with yields falling and corporate spreads tightening. Commodities also fell back in a variety of segments, including grains, metals, and natural gas.

• Economic news for the week included the Federal Reserve raising interest rates sharply in their fight with inflation. Data was mixed, with the index of leading economic indicators and retail sales softer, while industrial production improved. Producer prices remained high, but showed some deceleration. Housing starts and sentiment continued to decline, not helped by rising mortgage interest rates.
• Global equity markets responded negatively to persistent worries over high inflation, rate hikes, and rising recession risks. Bonds fell back on higher yields globally, and pressure on credit. Commodities fell broadly with a pullback in crude oil and natural gas prices.

Fed Note:

The Federal Reserve Open Market Committee continued its aggressive tightening pace in the June meeting, by raising the key fed funds interest rate today by 0.75%—to a new range of 1.50-1.75%. This was the largest single meeting hike since 1994, and featured one dissenting vote (by a member favoring 0.50%). Why 0.75% and not 0.50%? It appeared the most recent consumer price index reading (still persisting around peak levels) and longer-term inflation expectations in the recent Univ. of Michigan consumer sentiment survey in recent days may have been catalysts for the stronger message and front-loading of hikes from later to earlier meetings....

Economic Update 6-13-2022

• Economic data for the week included consumer price inflation coming in high in keeping with expectations. Consumer sentiment remains challenged, at its lowest levels in decades, due to high inflationary pressures, notably with gasoline. Jobless claims were little changed, when adjusted for seasonal effects.
• Global equity markets fell back last week, as high inflation reports and poor consumer sentiment dampened risk-taking. However, emerging market stocks fared better as pandemic conditions in China appear to be improving. Bond markets fell back again with interest rates rising across the board. Commodities were mixed overall, but oil and natural gas prices continued to move higher.

Economic Update 6-06-2022

• Economic data for the holiday-shortened week included a rise in manufacturing sentiment and small drop in services sentiment, despite both remaining solidly expansionary. House prices continued to increase at a dramatic pace. The May employment situation report outpaced expectations, although results were not as strong as in recent months.
• Global equity markets fell back from a steep recovery the prior week, except for emerging markets, which gained ground as Chinese lockdowns eased. Bond prices declined as the result of higher treasury interest yields. Commodities were mixed, with higher energy prices offsetting a pullback in grains.

Economic Update 5-30-2022

• Economic data for the week included a slight downward revision in first quarter GDP, positive durable goods orders, along with weaker new home sales data and consumer sentiment.
• Global equity markets rose broadly last week, with U.S. stocks outperforming foreign. Bonds also fared positively, with interest rates pulling back upon a possible peaking in inflationary pressures. Commodities rose due to gains in crude oil and natural gas.

Economic Update 5-23-2022

• Economic data for the week included gains in retail sales and industrial production. On the other hand, regional manufacturing sentiment fell back, as did several housing metrics as activity slowed along with historically-low residential home inventories.
• Global equities were mixed on the week, with U.S. stocks down sharply once again, while foreign stocks gained ground. Bonds fared positively, with interest rates backing off of peaks. Commodities gained a bit, led by industrial metals rather than oil.

Economic Update 5-16-2022

• Economic data for the week included higher readings for the producer price and consumer price indexes—continuing a trend of higher inflation. However, import prices saw some relief. Continuing jobless claims fell further to very low levels, indicating labor market strength.
• Global markets fell back sharply last week, as volatility amidst a variety of geopolitical and financial crosswinds as well as a rising interest rate regime kept sentiment depressed. Bonds reversed course and saw gains as longer-term yields fell back from recent peaks. Commodities were mixed, with little change in oil prices, which remained high.

Economic Update 5-09-2022

• Economic data for the week included the Federal Reserve raising short-term interest rates by a half-percent, an amount not seen in over two decades. The employment situation report for April continued to show a strong improvement in jobs, while the unemployment rate remained unchanged at a tight level. ISM manufacturing and services fell back a bit, but remained solidly in expansionary territory.
• Global equity markets experienced another volatile week, with U.S. stocks outperforming foreign markets. Bonds also declined along with rising interest rates, prompted by the Fed policy move. Commodities ended higher, driven by tight crude oil supplies.

The Federal Reserve Open Market Committee turned more aggressive in this month’s meeting by raising the key fed funds interest rate by 0.50%—for the first time in over twenty years by that amount—to a new range of 0.75-1.00%. There were no dissents. This was in line with consensus estimates, steered by Fed member comments over the past few weeks that guided markets to anticipate this more hawkish outcome.

The formal statement language noted that economic activity edged down in Q1, although household and business spending remains strong, as are job gains. Inflation was described as remaining elevated, reflecting ongoing pandemic disruptions as well as higher energy prices, although broadened to other areas. Ukraine was also mentioned as an additional source of geopolitical uncertainty, and Covid lockdowns in China continuing to weigh on supply disruptions. In addition to today’s rate hike, ‘ongoing’ rate increases were seen as appropriate. Guidelines for balance sheet reduction were also outlined, set to begin in June at $47.5 bil./mo., ramping up to $95 bil./mo. after three months.

Based on CME data, formal probabilities of a 0.50% fed funds hike ticked up a few percentage points in recent days to just under 100%¹. In addition, a 0.75% rate increase is the highest expected outcome for June. The September level is predicted to reach 2.50-2.75% (around the Fed long-term neutral rate), and 3.00-3.25% by December, although that features more outcome dispersion on both sides. The latest period available, Jul. 2023, shows the highest probability being 3.50-3.75%, implying some slowing in the hiking pace by that time. Regardless, markets are predicting a much more aggressive Fed pace than we’ve been used to, although these probability markets are subject to rapid change.

The Fed’s evaluation metrics remain mixed, in terms of high inflation being offset by still decent, but decelerating economic growth fundamentals: ...

Economic Update 5-02-2022

• Economic data for the week included a surprisingly negative U.S. GDP result for the first quarter. Housing data was mixed, with slower sales, but home prices reached record highs. Consumer sentiment fell back a bit, but durable goods rose, and jobless claims remained positive, and near multi-decade lows.
• Global equity markets fell back sharply last week, due to mixed earnings reports, high commodity prices, slowing growth, and Ukraine concerns. Bonds were little changed in the U.S., but were negatively impacted abroad by an especially strong U.S. dollar. Commodities were mixed, with higher energy prices offsetting declines in metals.

Economic Update 4-25-2022

• Economic data for the week included declines in several national housing numbers, such as existing home sales and homebuilder sentiment; however, housing starts rose a bit. The index of leading economic indicators showed growth, but at a tempered pace from preceding months.
• Global equity markets fell back last week, in keeping with continued concerns over the ongoing Ukraine war as well as hawkish rhetoric from global central bankers. Bonds declined due to that same rhetoric, which pushed intermediate-term interest rates higher, and foreign bonds hurt by a stronger dollar. Commodities reversed trend last week, by falling back across the board, notably in energy.

Economic Update 4-18-2022

• Economic data for the week included gains in retail sales, as well as improvement in consumer sentiment, and continued healthy jobless claims. However, producer and consumer price inflation continued to come in at multi-decade high levels.
• In a holiday-shortened week, global equity markets were mixed to lower, as high inflation readings and negative sentiment about Ukraine weighed on risk-taking. Foreign outperformed the U.S. slightly due to a weaker dollar. Bonds continued to lose ground as interest rates climbed higher in keeping with high CPI and PPI readings. Commodities also gained, with crude oil and natural gas prices rising sharply.

Economic Update 4-11-2022

• In a light week for economic data, ISM services sentiment continued to show strength, while the minutes from the most recent March Fed meeting laid out a plan for faster rate hikes and a plan to allow for a balance sheet run-off of treasury and mortgage bonds.
• Equity markets in both the U.S. and abroad fell back last week, as interest rates ticked higher and economic concerns weighed on sentiment. Bonds suffered along with rising rates. Commodities were mixed, with gains in agriculture offset by less volatile energy prices last week.

Economic Update 4-04-2022

• Economic data for the week included minimal revisions to prior-quarter U.S. GDP growth, and a slight decline in the pace of still-positive ISM manufacturing sentiment. Housing prices continued to rise at a solid clip, while labor markets continue to demonstrate a recovery, notably in nonfarm payrolls for March.
• U.S. equity markets were little changed on net, and were outshined by gains in foreign markets. Bonds gained ground to end the quarter, as interest rates fell back from highs. Commodity prices fell back, led by energy, along with a potential increase in crude oil supply from government reserves.

Economic Update 3-28-2022

• Economic data for the week included a decline in durable goods orders and new home sales, and consumer sentiment fell to multi-year lows. However, jobless claims again reached multi-decade levels of strength.
• U.S. equity markets gained ground last week, despite a more hawkish Fed; foreign markets were mixed, based on the relative impacts of high energy prices and the war in Ukraine. Bonds fell back sharply, as hawkish central bank language caused interest rates to drift higher in a variety of maturities. Commodities continued to gain across the board along with supply shortages, notably in energy and metals, due to the war in Ukraine and associated Russian sanctions.

Economic Update 3-21-2022

• In economic news, the Federal Reserve raised interest rates for the first time in several years, by a quarter percent. In other data releases, retail sales and industrial production increased, as did housing starts, while jobless claims also came in better than expected. Producer prices continued their rise, and the index of leading economic indicators improved.
• Global equity markets rose last week with a tempering in commodity prices, a Fed that acted on the more tempered side, and rumors of progress in Ukraine-Russia peace talks. U.S. bonds fell back as interest rates ticked higher, along with hawkish Fed language. Commodities fell back due to concern over lower demand in China, due to Covid lockdowns.

The Federal Reserve Open Market Committee raised the key fed funds interest rate today by 0.25%, to a new range of 0.25-0.50%. This first hike in four years was as expected, with the Fed communicating their intention and amount fairly directly in recent weeks. However, at least until the Russian invasion of Ukraine, there was debate about whether the hike could be as high as 0.50%. In fact, there was one dissent in the committee decision, by Fed St. Louis President Bullard, who preferred the 0.50% hike....

Economic Update 3-14-2022

• Economic data for the week included the consumer price index rising to another multi-decade high, job openings continued to show strength, while jobless claims were little changed.
• Global equity markets lost ground again in keeping with the geopolitical and economic aftermath of the Ukraine conflict, although hopes for diplomacy resulted in a few positive days. Bonds fell back as well, with interest rates rising on net along with record inflation data. Commodities prices pulled back after a strong run since the start of the conflict.

Economic Update 3-07-2022

• Economic data for the week included a robust employment situation report, as well as other labor metrics, and improved manufacturing and construction activity.
• Global financial market sentiment continued to be driven by the Russia-Ukraine conflict, with U.S. and especially foreign stocks losing ground and staying in correction territory. Bonds were mixed, with higher-quality safe haven debt faring positively. Commodities experienced sharp gains, led by crude oil and grains—exports most affected by Russian and Ukrainian supplies.

Economic Update 2-28-2022

• Economic data for the week included a slight revision to prior-quarter GDP, a continued gain in house prices, and continued lower jobless claims. However, the Russian invasion of Ukraine dominated most other news.
• Global equity markets initially fell sharply last week, in the ramp-up to the Russian invasion, which had been brewing for weeks. However, stocks recovered after the military activity started and rumors of negotiations came. U.S. bonds started strong but fell back as interest rates ticked higher along with a return to inflation worries. Commodities gained across the board, notably in energy and agriculture, due Russian and Ukrainian-specific supply concerns.

A variety of conflicts involving major world powers have tended to historically raise short-term volatility in global financial assets. However, market damage has tended to be short-lived, as in the magnitude of a typical market correction (-10% or a bit more). One has currently been already underway since January, mostly due to interest rate fears, but also the probability of Russian military action in the Ukraine. Markets have reacted worse (such as -20% bear market-type declines) during broader regional conflicts, such as World War II or the Israel/Arab war in 1973. In the majority of cases, though, recoveries have also been relatively swift, and there has not been as much direct long-term economic impact as one might fear...

Economic Update 2-22-2022

• Economic data for the week included retail sales that came in higher than expected, as well as gains in industrial production, mixed regional manufacturing sentiment and housing metrics, and a slight pullback in the index of leading indicators.
• U.S. and foreign equity markets fell back last week, as tensions over Russia and Ukraine wavered (generally rising), in addition to continued strong U.S. inflation rhetoric. Bonds were mixed, with yields little changed, but credit spreads widened. Commodities were also mixed, with gains in metals offset by a pullback in oil prices by several percent.

Economic Update 2-07-2022

• Economic data for the week included a much stronger than expected employment situation report for January, as well as a pullback in the ISM manufacturing and services indexes, although the two still lie solidly in expansion.
• Global equity markets bounced back last week, with decent economic data and some improvement in the Covid caseload. Bonds fell back across the board, as interest rates continued to tick higher, along with the consensus opinion that central banks will be raising rates through 2020. Commodities gained ground again last week, led by crude oil prices, with high demand continuing to surpass more limited supply.

Economic Update 1-31-2022

• Economic data for the week included the Fed signaling upcoming rate hikes, a stronger-than-expected GDP growth report for Q4, and robust housing data, but a weaker durable goods report.
• U.S. equity markets ended mixed to higher in a volatile trading week, with large cap stocks outperforming small caps. Foreign stocks generally were negative, in keeping with a stronger dollar. Bonds fell back broadly along with higher interest rates following a hawkish Federal Reserve. Commodities gained, mostly in the energy sector—particularly due to weather, Ukraine, and market technicals in natural gas.

Fed Note:

The Federal Reserve Open Market Committee made no changes in interest rates today, as expected, staying with the target of 0.00-0.25%. But, times are changing.

The formal statement language was significantly simplified from December, that economic activity and employment have ‘continued to strengthen’, but also acknowledged the sharp recent rise in Covid cases on particular sectors. High inflation was attributed to ongoing ‘supply and demand imbalances’. However, the FOMC expects that it will ‘soon be appropriate’ to raise interest rates. The tapering off of treasury and mortgage-backed bond purchases was ramped up, scheduled to end in ‘early March’....

Economic Update 1-24-2022

• Economic data for the holiday-shortened week included mixed regional manufacturing results and housing data, higher jobless claims, but continued gains in the index of leading indicators.
• U.S. equity markets, especially the Nasdaq-heavy group of technology stocks, fell back near or into correction territory. Foreign stocks fared slightly better than U.S., although also in the negative. Bonds were mixed, based on risk level. Commodities gained a bit on net, along with continued tight supplies in crude oil markets.

Economic Update 1-18-2022

• Economic data for the week included continued historically-strong producer and consumer inflation readings, while retail sales came in weaker than expected.
• U.S. equity markets fell back last week, as investor continued to digest tighter monetary policy and the impact of the Covid omicron variant. Foreign stocks fared a bit better, due to a weaker dollar. Bonds were mixed, with lower-rated bonds outpacing investment-grade, with yields moving slightly higher. Commodities gained in keeping with a weaker dollar and rising crude oil prices.

Economic Update 1-10-2022

• Economic data for the week included a disappointment in December nonfarm payrolls, although the unemployment rate continued to improve. ISM manufacturing and services both fell back for the month, but remained solidly in expansion. Minutes from the Dec. Fed meeting showed a more hawkish tone than did the original statement released at the time.
• U.S. equity markets fell back along with higher yields, hawkish Fed meeting minutes, and higher commodity prices. Foreign stocks fared better, with mixed results. Bonds fell back sharply, as a result of higher long-term interest rates. Commodities gained, due to a geopolitical-based spike in energy prices.

Economic Update 1-3-2022

• For the final week of 2021, sparse economic data included a continued rise in national home prices, although pending sales fell back. Jobless claims continued to show downward improvement.
• Global equity markets ended the year on a positive note last week. Bonds were mixed, as interest rates were little changed. Commodities gained more ground, with help from a weaker dollar and hopes for continued demand recovery.

Economic Update 12-27-2021

• Economic data during the holiday week included a slight revision upward for Q3 U.S. GDP, and a slight improvement in consumer confidence. Durable goods orders and housing metrics were mixed.
• Global equity markets gained broadly last week, as fear of the Covid omicron variant’s severity seemed to subside a bit. Bonds were mixed to lower along with higher interest rates. Commodities also fared well, particularly in oil and metals, where the demand outlook was again viewed more positively.

Economic Update 12-20-2021

• Economic data for the week included the Federal Reserve announcing a faster pace in the tapering off of bond purchases, reflecting stronger growth and inflation pressures, as seen by last week’s high PPI number. Retail sales and industrial production rose, while several regional manufacturing indexes were mixed. Housing metrics also continued to improve.
• Global equity markets fell as fears of the omicron variant and Fed tightening intensified toward the end of the week. Bonds fared well with investors avoiding risk, which pushed long-term rates lower. Commodities were mixed, with gains in metals offset by declines in energy.

Economic Update 12-13-2021

• In a lighter week for economic data, releases included consumer price inflation reaching a 40-year high, while jobs statistics continued to show improvement.
• Global equity markets rose with waning concern over the severity of the Covid omicron variant, and its potential impacts on economic growth. Bonds were mixed, with high-grade debt falling back due to rising rates, while bonds of lower credit quality fared positively. Commodities gained as crude oil prices bounced back strongly.

Economic Update 12-06-2021

• Economic data for the week included stronger manufacturing data and higher home prices, while consumer sentiment fell back a bit. The employment situation report came in far weaker than expected on a headline basis, although other data appeared more robust.
• U.S. equity markets fell back last week upon the Federal Reserve’s evolving opinion of inflation and the uncertainty surrounding the new Covid omicron variant; foreign stocks, however, fared better. Bonds gained ground in keeping with investors moving away from risky assets. Commodities lost ground, with the prices of crude oil and natural gas continuing to fall on demand concerns.

Economic Update 11-29-2021

• In a holiday-shortened week, economic data included stronger personal income and spending, as well as recovering consumer sentiment, while durable goods orders fell back. Housing data was strong in both new and existing home sales.
• Global equity markets were benign until Friday, when the emergence of a new Covid variant rattled investors. U.S. treasury bonds fared slightly positive due to flows away from risk, while credit and emerging market bonds fell back. Commodities also fell back, highlighted by a rapid correction in the price of crude oil.

Economic Update 11-15-2021

• Economic data for the week included higher ongoing readings for producer and consumer price inflation—the latter rising at the fastest year-over-year rate in three decades. The trend in improving jobless claims also slowed, and consumer confidence fell.
• Global equity markets declined in keeping with a higher U.S. inflation report, weaker sentiment, and rising foreign Covid cases. Bonds reversed course and pulled back as long-term rates ticked higher. Commodities were mixed, but energy fell back contrary to recent trends.

Economic Update 11-08-2021

• Economic data for the week included the Federal Reserve beginning its ‘taper’, coupled with weaker manufacturing results, but new all-time highs in services sentiment. The employment situation report for October surpassed expectations, reversing disappointment of the prior month.
• Global equity markets gained with continued economic and earnings improvement, and less hawkish-than-expected world central bank policy. Bonds fared well globally as interest rates declined. Commodities ended the week mixed, with declines in energy and industrial metals offset by gains in precious metals.

Economic Update 11-01-2021

• Economic data for the week included weaker-than-expected U.S. GDP growth for the third quarter, and declines in durable goods orders and pending home sales. However, home prices, new home sales, consumer confidence, and jobless claims all improved.
• Global equity markets were mixed, with gains in the U.S. offset by little change in Europe, and declines in emerging markets. Domestic bonds fared positively due to a decline in interest rates. Commodities featured little change in energy prices, and mixed results in grains and metals.

Economic Update 10-25-2021

• Economic data for the week included manufacturing indexes which leveled off a bit from highs, while on the positive side, jobless claims fell to new cyclical lows. Home sales and housing starts were mixed, with prices moving higher and inventories remaining tight.
• Global equity markets continued their positive performance, due to strong earnings results for the prior quarter. Bonds suffered, as interest rates rose again in keeping with improving conditions. Commodities were mixed, with metals falling back, while energy again experienced gains.

Economic Update 10-18-2021

• Economic data for the week included stronger-than-expected results for retail sales, while inflation continued to come in elevated for producer, consumer, and import prices. Job openings and jobless claims also continued to strengthen as labor markets show improvement.
• Global equity markets rose along with improving economic data, and inflation that came in no worse than expectations. Bonds also gained as long-term interest rates declined. Commodity prices continued to rise with prices for copper and other metals overtaking the energy story last week.

Economic Update 10-11-2021

• Economic data for the week included improvement in ISM non-manufacturing sentiment, ADP private employment, and jobless claims. However, the employment situation report for September came in short of expectations.
• U.S. equity markets gained last week, in contrast to a negative September, while foreign regions ended mixed. Bonds lost ground globally as interest rates rose, in keeping with persistent inflation concerns. Commodities gained several percent, as crude oil prices reached a multi-year high upon strong demand and lack of available supply.

Economic Update 10-04-2021

• Economic data for the week included a slight revision higher in Q2 U.S. GDP growth, stronger durable goods orders and ISM manufacturing sentiment, as well as stronger housing price and sales data. Jobless claims and consumer sentiment were mixed.
• Global equity markets fell back again last week, with continued investor concerns about inflation, rising interest rates, and an upcoming treasury debt ceiling. Bonds declined as well, in keeping with higher rates. Commodities continued to see gains, on the back of spiking petroleum prices.

Economic Update 9-27-2021

• Economic data for the week included no action by the Federal Reserve regarding interest rates (although they gave strong signals about upcoming tapering). Otherwise, existing home sales fell, new home sales and housing starts rose, while jobless claims were mixed.
• U.S. equity markets rebounded from a volatile start to the week to gains, while foreign equities ended mixed. Bonds lost ground across the board as investors interpreted a somewhat optimistic Fed into higher interest rates. Commodities rose across the board, led by a sharp supply-driven rise in the price of crude oil.

Economic Update 9-13-2021

• On a holiday-shortened and light week for economic releases, data included improvement in job openings and jobless claims, as well as higher producer price inflation.
• Global equity markets fell back throughout the course of the week, as continued Covid cases and rising prices have raised fears about the durability of the recent growth stretch. Bonds were little changed in the U.S., while foreign debt was negatively impacted by a stronger dollar. Commodities were mixed, with gains in industrial metals and energy offset by declines elsewhere.

Economic Update 9-07-2021

• Economic data for the week included stronger results in the manufacturing and construction segments, while services sentiment and the monthly employment situation report came in weaker than expected. Home prices also continued to increase at historically impressive rates.
• Global equity markets gained last week, with economic data coming in as expected for the most part and little late summer news. Bonds were similarly flat in the U.S., with little trading volume, although foreign issues fared better due to a weaker dollar. Commodities ticked higher, particularly natural gas, due to recent disruptive storm activity.

Economic Update 8-30-2021

• Economic data for the week included some improvement in prior-quarter GDP, continued gains in personal income and spending, decent home sales figures, while durable goods and consumer sentiment were little changed.
• Global equity markets gained last week, as formal Pfizer vaccine approval appeared to raise hopes for continued improvement in world vaccination rates. Bonds were little changed in the U.S., but fared well abroad from a weaker U.S. dollar. Commodities gained due to the same currency effect and jump in crude oil prices, along with the Afghanistan terror attack and impending Gulf Coast hurricane.

Economic Update 8-23-2021

• Economic data for the week included weakness in retail sales, housing, as well as regional manufacturing sentiment. On the other hand, industrial production and jobless claims improved.
• Global equity markets suffered net declines last week, as the headwinds of the Covid delta variant, potentially peaking growth, and higher potential for a Federal Reserve ‘taper’, all weighed on investor sentiment. Bonds fared decently as flows moved away from risk assets, driving down rates. Commodities suffered sharp declines, as the above-noted factors were assumed to threaten economic activity and goods demand.

Economic Update 8-16-2021

• Economic data for the week included continued high readings for import and producer prices; consumer price inflation remained elevated as well, although showing signs of deceleration. Other data pointed to stronger job openings and a continued reduction in jobless claims.
• Global developed equity markets ended the week with gains generally, while emerging market and U.S. small cap lost ground. Bonds eked out small gains as interest rates again ticked down across the yield curve. Commodities earned marginally positive returns, with crude oil prices little changed for the week on net.

Economic Update 8-09-2021

• Economic data for the week included a slight drop in manufacturing, offset by continued strength in services. The July employment situation report came in stronger than expected, on both job creation and a lower unemployment rate.
• Global equity markets saw gains across the board, although emerging markets were held back a bit by China. Bonds fell back as interest rates moved higher. Commodities fell back, largely due to a sharp correction in crude oil prices based on demand fears.

Economic Update 8-02-2021

• Economic data for the week included Q2 GDP growth that came in robust, but below market expectations. Housing metrics were mixed, with strong prices but weaker sales. Consumer confidence continued to improve slightly.
• U.S. equity markets were mixed, as large caps lost ground but small caps gained. Foreign stocks were similarly mixed, with emerging markets were pulled down by volatility in certain Chinese sectors. Bonds gained slightly as interest rates continued to pull back. Commodities were helped from a weaker dollar, particularly in energy and industrial metals.

The Federal Reserve Open Market Committee made no changes in monetary policy today, keeping rates near the zero target of 0.00-0.25%. This was as expected.

The formal statement language was minimally changed. The only adjustments noted labor continuing to strengthen, but have not fully recovered; additionally, economic growth continuing to depend on the path of Covid (which has worsened in recent weeks). The most closely-watched word, ‘transitory’ (referring to current inflation drivers), was kept intact. Overall, it provided minimal new information. The Fed is establishing two permanent repo facilities, one domestic and one for international transactions. These facilities represent continued non-emergency avenues for providing liquidity to short-term funding markets as needed, rather than being started and stopped, which contain their own market signaling problems. The concept of this had been discussed in prior meetings.

Market analysis has moved to the question of when the Fed will begin (or simply begin discussing) the ‘tapering’ off of their monthly treasury and agency mortgage-backed bond purchases. Current odds seem to point to year-end, although recently higher inflation readings may have sped up the timeline by a few months.

The Fed’s evaluation metrics remain mixed, but point to an economy that is recovering from the worst of 2020: ...

Economic Update 7-26-2021

• Economic data for the week included gains in existing home sales and housing starts, along with continued rising prices and tight inventory. Jobless claims were mixed, with seasonal effects affecting near-term claims, while continuing claims showed ongoing improvement.
• U.S. equity markets rebounded into positive territory last week after a sharp Monday downturn, fueled by fears around the Covid Delta variant. Foreign stocks in developed markets gained to a lesser degree, while emerging markets lost ground. Domestic bond prices ticked slightly higher as yields and credit spreads continued to decline. Commodities were mixed, despite some early week demand concerns for crude oil, which later recovered.

Economic Update 7-19-2021

• Economic data for the week included strong consumer and producer inflation readings, as well as improvements in retail sales and industrial production. Jobless claims also continued to fall, while consumer confidence waned a bit.
• Stocks were mixed globally last week—the U.S. and developed foreign markets lost ground, while emerging markets gained. Bonds fared positively as yields on the treasury curve continued to fall. Commodities were mixed, with crude oil prices pulling back by a few percent, partially offset by ag prices.

Economic Update 7-12-2021

• During an abbreviated week, economic data included a decline in services sentiment, although the measure remained quite strong. Job openings improved, while jobless claims were mixed—as initial claims rose but continuing claims sustained their decline.
• U.S. equity markets gained slightly last week, outperforming foreign—especially emerging markets which fell back sharply. Bonds in the U.S. and developed markets gained as interest rates continued to fall, surprisingly many investors. Commodities lost ground last week, largely led by declines in the grain complex.

Economic Update 7-06-2021

• Economic data for the week included a jobs report that came in a bit better than expected, in addition to strength in  consumer confidence, home prices, and other labor metrics such as improved jobless claims. On the other hand, manufacturing sentiment declined a bit—but remained at a very high level.
• U.S. equity markets moved to new highs along with continued improving economic data, while foreign stocks were held back by Covid and inflation fears. Bonds fared well as interest rates continued to temper across the curve. Commodities gained across the board, notably in agriculture last week.

Economic Update 6-28-2021

• Economic data for the week included unchanged GDP growth for the prior quarter, as well as stronger durable goods orders and jobless claims, while both existing and new home sales fell along with continued low inventories.
• Global equity markets gained last week, led by the U.S., and particularly in small cap, due to news of a broader infrastructure agreement framework and more dovish Fed talk. Bonds were mixed, with higher rates holding back U.S. debt, while foreign bonds were boosted by a weaker dollar. Commodities gained across the board, with strength in energy and metals.

Economic Update 6-21-2021

• Economic data for the week included strength in industrial production and housing starts, but offset by weaker retail sales results. Initial jobless claims rose slightly, although the overall rolls continue to improve. The U.S. Federal Reserve kept interest rates on hold (at zero), as expected, but several committee members assumed some tightening by 2022-23.
• U.S. equity markets declined last week along with slightly more ‘hawkish’ Federal Reserve language about future interest rate policy—acknowledging a steady return to normal. Foreign stocks fared a little better in local terms, but were held back by a stronger dollar. Bonds were flattish in the U.S. on net, despite some rate volatility during the week, and outperforming foreign debt. Commodities were down across the board sharply, aside from higher prices for crude oil.

The Federal Reserve Open Market Committee made no changes in monetary policy today, keeping the target short-term interest rate at 0.00-0.25%. The official statement was little changed in substance, with wording about the hardship caused by the Covid-19 pandemic replaced by the improvement due to wider vaccinations.

The most recent Fed member estimates (seen in the ‘dot plots’) point to a greater chance of a rate hike or two by 2023 than the previous March plot. (This realization caused a quick stock market drop.) To put it into perspective, a fed funds rate of 0.25% or 0.50% a few years from now still counts as quite accommodative, even if not the zero of today. The clustering of longer-term fed funds rate expectations remains around 2.5%. This implies, assuming the 2.0% inflation target is achieved and maintained, a real yield of 0.5%. This is below the multi-decade historical norm of about 1.0% for cash, but certainty an improvement on today’s miniscule yields (welcomed by savers), even if it takes time to get there.

The key question is when will the ‘tapering’ off of ongoing $120 bil./mo. treasury and mortgage bond purchases begin? ‘Talking about tapering’ has been the much-talked-about first step, followed by actually doing it. Hardly anyone thought it would happen at today’s meeting, but the timeline has certainly moved earlier after the strength in recent months. Only once tapering goes on for a while will rates likely start rising. Interestingly, based on CBOE fed funds futures, the probability of no change today had fallen to 93%, with the remaining 7% betting on a quarter-point increase. These odds remain consistent through December.

Most of the Fed’s metrics are showing improvement, as seen in many data releases: ...

Economic Update 6-14-2021

• Economic data for the week included stronger consumer inflation results, as well as higher job openings, and continued decline in the number of weekly jobless claims.
• U.S. and European equity markets saw further gains, with accommodative policy and tempered longer-term inflation expectations swaying sentiment. Bonds earned positive returns as well, along with falling long-term interest rates. Commodities ticked higher, largely due to crude oil and natural gas prices.

Economic Update 6-07-2021

• On a Memorial-Day shortened week, economic data included strong results for manufacturing and services indexes. Employment numbers were mixed, as jobless claims improved, as did the employment situation report number, although the latter fell short of market expectations.
• Global equity markets earned positive returns last week, with stronger economic data coupled with eased worries about the duration of continued government policy support. U.S. bonds gained slightly as interest rates pulled back after a lackluster jobs data. Commodities continued to gain ground, largely due to higher oil and natural gas prices last week.

Economic Update 6-01-2021

• Economic data for the week included largely unchanged Q1 GDP estimates, and a decline in durable goods orders. On the housing side, prices continue to show strong momentum, while sales fell due to increasingly tight inventories. Jobless claims continued to improve and point to labor market repair.
• Global equity markets continued to benefit from strong economic rebound activity and consumer sentiment. Bonds also benefitted from a pullback in interest rates. Commodities were led by demand expectations for energy and metals.

Economic Update 5-24-2021

• Economic data for the week included declines but still-strong readings for key regional manufacturing indexes, and a pullback in home sales and starts, while jobless claims improved and the index of leading economic indicators continue to show strength.
• U.S. equity markets declined last week, and underperformed gains in foreign markets along with improved sentiment for the future. Bonds were little changed, along with minimal change in the yield curve. Commodities were mixed, with most falling into the negative, including lower oil and metals prices.

Economic Update 5-17-2021

• Economic data for the week included a surprise higher for consumer inflation, with the strongest monthly report in decades, along with strong readings for producer price inflation and import prices. Industrial production also came in positively, while retail sales and consumer sentiment fell back a bit from a stronger prior months.
• Equity markets experienced higher volatility last week as early fears of inflation were eventually replaced by optimism over the CDC’s looser recommendations about mask-wearing. Bonds fell back as higher long-term rates again pulled prices lower. Commodities were mixed, with gains in energy and declines in industrial metals and agriculture.

Economic Update 5-10-2021

• Economic data for the week included pullbacks but still historically-strong showings for manufacturing and services. While jobless claims improved, the employment situation report for April proved a disappointment.
• U.S. equity markets fared positively last week, upon the heels of strong earnings reports and continued improvement in the global economy. Foreign stocks outperformed, with help from dollar weakness. Bonds also gained, as interest rates fell back further from recent highs; foreign debt benefited from dollar weakness as well. Commodities gained across the board with continued growth in demand and positive sentiment.

Economic Update 5-03-2021

• The Federal Reserve meeting last week resulted in no changes in policy, per expectations. Economic data included strong advance GDP results for Q1, as anticipated; and durable goods orders, housing prices, and consumer confidence all experienced growth.
• U.S. equity markets were mixed to lower for the week, outperforming foreign stocks that lost ground in line with a stronger dollar. Bonds fell back as interest rates ticked higher. Commodities gained across the board along with stronger goods demand coupled with some supply concerns.

Economic Update 4-26-2021

• Economic data for the week included a pullback in existing home sales, while new home sales, the index of leading economic indicators, and jobless claims all improved.
• U.S. equity markets were mixed to lower last week, but outperformed developed markets, while emerging markets ended with a small gain. Bonds were little changed, in keeping with minimal changes in interest rates. Commodities continued a string of gains, with agricultural commodities leading the way, as oil fell.

Economic Update 4-19-2021

• Economic data for the week included several robust reports that demonstrate early economic recovery from the pandemic, with favorable ‘base effects’ from low points last March. These include strong readings for retail sales, housing starts, and several regional manufacturing indexes. Jobless claims have also improved. 
• Global stocks gained last week with continued strong economic data reports. Bonds also fared positively as interest rates ticked downward, with dovish central bank communications. Commodities earned positive returns in all groups, led by energy demand and a weaker dollar.

Economic Update 4-12-2021

• Economic data for the week included historical strength in ISM services, coupled with strength in job openings, and an especially strong increase in producer prices.

• U.S. equity markets gained ground last week, outperforming foreign markets, which also showed gains to a lesser degree. Bonds also fared well with interest rates falling back a bit. Commodities were mixed, with agriculture and metals offsetting a pullback in energy prices.

Economic Update 4-05-2021

• On a holiday-shortened week, economic data included strong manufacturing data, as well as continued growth in home prices and consumer confidence. Jobless claims rose a bit, but the March employment situation report came in showing stronger-than-expected recovery.
• Global equity markets were mixed to higher last week, along with continued improving economic news. Bonds were also mixed, with rates little changed, but gains in corporates as spreads tightened. Commodities were flat on net, with gains in energy offset by declines in metals.

Economic Update 3-29-2021

• Economic data for the week included a small upgrade for the prior month’s GDP growth rate, as well as declines in durable goods orders and several housing metrics—largely due to the prior month’s winter weather challenges. Consumer sentiment and jobless claims were slightly improved.
• U.S. equity markets outperformed foreign last week, with help from the dollar, which appreciated nearly a percent against foreign currencies. Bonds earned positive returns as long-term treasury rates fell back a bit from recent increases. Commodities were mixed to lower, with continued volatility in crude oil, resulting from the Suez Canal shipping accident in the Middle East that created a major global trade bottleneck.

Economic Update 3-22-2021

• Economic data for the week included a drop in February retail sales and industrial production, as did several housing metrics. However, several regional manufacturing indexes showed strong gains.
• Global equity markets were mixed last week, as continued Covid concerns abroad competed with increasing activity, especially in the U.S., leading to rising interest rates. Bonds continued to lose ground, due to rates ticked higher upon ongoing market inflation fears for the near-term. Commodities were mixed, led by oil prices falling sharply.

Fed Note:

The Federal Reserve Open Market Committee made no change in policy, keeping the target short-term interest rate at 0.00-0.25%. Similarly, no change was made in the pace and magnitude of ‘quantitative easing,’ which is the ongoing treasury and mortgage bond purchase program.

The formal statement showed an upgrade in the economic outlook, with 2021 growth from 4.2% to 6.5%, unemployment lower from 5.0% to 4.5%, and PCE inflation up from 1.8% to 2.4% (core to 2.2%). However, it was noted that most sectors and inflation remain weak. On the dot plot graph, four members now believe a rate increase in 2022 is likely, while seven remain hinged on 2023.

In looking at the Fed’s mandates, all have improved, which raises questions about the timeline for keeping a low rate policy intact:

Economic Update 3-15-2021

• Economic data for the week included tempered increases in both the producer price index and consumer price index, which appeared to calm some fears about rising inflation. Consumer sentiment continued to improve, as did several labor metrics on the margin.
• Global equity markets gained, with the passage of the U.S. Congressional stimulus package, and stronger optimism surrounding vaccine distribution. Bonds fell back again, with interest rates ticking higher along with festering inflation fears. Commodities were little changed, with metals rising in price, while energy fell back from recent highs.

Economic Update 3-08-2021

• Economic data for the week included improvements in manufacturing and construction spending, while services results fell back a bit. The February employment situation report came in stronger than expected, although still being negatively affected by winter weather during the month.
• U.S. equity markets gained on net for the week, as several negative days based on investors digesting rising interest rates, were offset by a finalization of stimulus, stronger economic numbers, and the availability of a new third vaccine. Domestic markets outperformed foreign stocks, which were little changed on net. Bonds suffered for another week as interest rates ticked higher upon expectations for economic reflation and aftermath of the massive stimulus package. Commodities rose as a whole due to a spike in oil prices, while other segments, such as metals, declined.

Economic Update 3-01-2021

• Economic data for the week included little change in 4^thquarter GDP, while improvements were seen in personal income, durable goods orders, consumer confidence, and various housing sales metrics.
• Global equity markets fell, as rising interest rates, fears of inflation, and general profit-taking appeared to dominate sentiment. Bonds also lost ground, being affected by rising rates even more directly. Commodities gained on the heels of stronger crude oil prices.

Economic Update 2-22-2021

• Economic data for the week included positive surprises in retail sales and industrial production, while housing results were mixed for the past month—although the recovery trend remains in place.

• Global equity markets were mixed to lower globally, with the U.K. as the best performer. Bonds pulled back globally, as interest rates again nudged higher due to fears of stimulus leading to eventual inflation. Commodities gained ground, led by strength in industrial metals and natural gas.

Economic Update 2-16-2021

• Economic data for the week included inflation that continued to rise slightly (due to commodity prices largely), but still tempered levels on a trailing year basis. Labor metrics improved a bit, but remain challenged relative to pre-Covid levels.
• Global stock markets experienced a positive week, with foreign outperforming U.S. equity markets. Domestic bonds fell back as interest rates ticked higher, while foreign bonds benefited from a weaker dollar. Commodities rose across the board, with strong demand and supply concerns, particularly for crude oil.

Economic Update 2-8-2021

• Economic data for the week included slightly weaker results for manufacturing, but a stronger report for services. The employment situation report for January was disappointing, but other labor reports featured a few bright spots.
• Global equity markets bounced back sharply last week, with U.S. outperforming foreign by a bit. However, higher-quality bonds fell back in keeping with rising interest rates. Commodity prices rose due to spikes in the prices for crude oil and natural gas.

Economic Update 2-1-2021

• Economic data for the week included no action by the Federal Reserve, a 4^thquarter GDP report that came in largely in line with expectations, continued strength in the housing market, and jobless claims that came in a bit better.
• Global equity markets experienced their worst week in a few months, with ongoing fears of economic slowing due to continued virus cases, in addition to some unique trading in certain U.S. stocks that raised volumes. Bonds were little changed despite that weakness in risk assets. Commodities were slightly higher due to tighter agricultural inventories.

The Federal Reserve made no policy changes at today’s meeting, as expected. The fed funds rate was kept at the zero bound of 0.00-0.25%.

The formal statement was little changed, noting that the pace of recovery is moderating, with ‘weakness concentrated in the sectors most adversely affected by the pandemic.’ There were no dissents. They did note that the overnight repo facility will be closed down by February, as it appears it’s no longer needed (it had low volume as of late). There was no change to the language about staying accommodative. Much of the speculation before the meeting was centered on trying to gauge the Fed’s timetable for asset purchases (on adding to the purchases and/or when they’ll end), but there was no clarity on this. Also, there have been calls for the Fed and U.S. Treasury to ‘lock in’ low financing rates by extending the average maturities of the portfolio and move issuance to new debt to longer maturities, including perhaps issuing a 50-year bond, as other nations have, but no announcement as of yet.

This is how the key Fed inputs look in early 2021...

Economic Update 1-25-2021

• Economic data for the holiday-shortened week included a sharp rise in manufacturing, and improvements in several housing metrics—the latter continuing a trend higher from recent months.
• Equity markets in the U.S. and abroad gained last week as the new Biden administration looks to pass additional stimulus legislation. Bonds were little changed, as interest rates leveled off. Commodities were mixed, with metals gaining a bit, and energy falling slightly.

Economic Update 1-19-2021

• Economic data for the week included a deeper-than-expected decline in retail sales, weaker Empire state manufacturing, and an unexpected rise in jobless claims. Producer and consumer inflation measures rose slightly, in keeping with recent trend. Industrial production, on the other hand, continued to increase.
• Global stock markets declined last week, with mixed economic data resulting from continued high Covid cases. Bonds were little changed in the U.S. in keeping with slower rises in interest rates, while foreign bonds were hampered by a stronger U.S. dollar last week. Commodities were mixed to neutral in several key areas, such as energy, but agricultural prices saw a spike due to rising demand.

Economic Update 1-11-2021

• Economic data for the week included stronger reports for ISM manufacturing and services, while the employment situation for December weakened more than expected.
• Equity markets rose several percent globally, with the U.K. and emerging markets leading other regions, with hopes for larger U.S. stimulus upon the victory of both Georgia Democratic Senate candidates, and in spite of a riot at the U.S. Capitol. Bond prices fell back as interest rates ticked higher based on additional stimulus expectations. Commodities rose, with continued recovery gains in crude oil—which rose back above $50/barrel.

Economic Update 12-29-2020

• On the shortened holiday week, economic data included a decline in personal income and spending, mixed results in housing, and weaker consumer confidence.
• Global equity markets were down on net last week, as agreement on Congressional stimulus remained in limbo and Covid case counts remain high, along with a newly identified strain in the U.K. Bonds fared positively in the U.S. with lower interest rates, but hampered elsewhere due to a stronger dollar. Commodity prices generally fell last week.

Economic Update 12-21-2020

• Economic data for the week included declines in retail sales, industrial production, as well as in several regional manufacturing indexes. Jobless claims also ticked higher along with rising virus counts nationally.
• Global equity markets rose last week, with continued easy economic policies announced and optimism over the new Covid vaccines. Bonds were down in the U.S. as rates ticked higher, while foreign bonds benefitted positively from a weaker dollar. Commodity prices rose broadly due to expectations for a global demand recovery, especially for energy and metals.

Economic Update 12-14-2020

• In a lighter week for economic data, releases included minor increases in producer and consumer prices, and higher-than-expected jobless claims as an uptick in Covid cases continues to weigh on the jobs market. Consumer sentiment improved with the Covid vaccine news, along with inflation expectations falling a bit.
• Global stocks declined last week, as higher Covid case counts, lack of economic stimulus from the U.S. Congress, and upcoming deadline for Brexit weighed on investor sentiment. Bonds, on the other hand, fared well as interest rates retreated downward. Commodities gained across the board in keeping with a renewed trend of optimism for higher eventual post-pandemic demand in energy and metals.

Economic Update 12-07-2020

• Economic data for the week included slightly weaker ISM manufacturing and services, although the underlying metrics continued to show expansion. The employment situation report for November showed a significant slowing of job growth compared to the recovery over the past six months, due to rising Covid cases.
• U.S. equity markets led the globe last week, again reaching new highs, while foreign stocks earned positive results as well. Bonds declined in the U.S. as positive sentiment and stimulus hopes led to higher long-term interest rates, while a falling dollar helped foreign bonds. Commodities were mixed with less volatility than seen in recent weeks, as crude oil again climbed higher.

Economic Update 6-08-2020

• Economic data released last week continued to show broad shutdown-based weakness over the past several months, in manufacturing, services, construction, and employment. However, some signs of improvement are being seen on the margin, which have been taken positively by financial markets.
• U.S. equity markets gained with signs of economic recovery and a strong jobs report later in the week; foreign markets moved higher to an even greater degree. Bonds lagged with interest rates ticking higher on this same strength. Commodities rose with another strong recovery in crude oil, as producing nations discussed further supply cuts and demand is up.

Economic Update 6-01-2020

• On a shortened holiday week, economic data continued its lackluster trend, now reporting the well-known weakness of April and May in many industries. Included were weaker numbers for durable goods, jobless claims, and pending home sales. Consumer sentiment and housing prices were mixed.
• Global equity markets gained with optimism over lockdowns easing and a slow return to normalized activity. Foreign stocks outperformed U.S., helped by a weaker dollar. Bonds gained upon lower interest rates, and tighter credit spreads. Commodities gained along with hopes for economic recovery, led by higher crude oil prices—which have come a long way in recent weeks.