Weekly Market Commentary – 11/18/2022
-Darren Leavitt, CFA
Investors continued to digest the market’s recent strength and questioned if there is more upside to the move. There was no lack of hawkish Fed speak throughout the week. St. Louis Fed President Bullard suggested the Fed may need to take the terminal rate to 7%. KC Fed President George suggested that the economy needed to contract and the labor market needed to weaken to get inflation in check. San Francisco Fed President indicated that the discussion to pause rate hikes was not even on the table for discussion. The combined rhetoric inverted the yield curve further, sending the 2-10 spread to sixty-eight basis points.
Earnings showed mixed results in the retailers. Walmart had a great quarter, while Target plummeted. Macy’s, Ross, Footlocker, and TJ Max reported better-than-expected results. In Technology, Palo Alto Networks and Cisco Systems had solid results, while Micron Technology missed estimates and lowered guidance. Q4 earnings expectations have increasingly become a concern as most expect economic growth to slow.
Economic data for the week was mixed but showed more signs that inflation may have peaked. The Producers Price Index came in at 0.2% versus expectations of 0.5% on a month-over-month basis, while it fell to 8% from 8.5% year over year. Similarly, the core PPI came in flat versus the consensus estimate of 0.3%. The core reading fell to 6.7% from 7.2% on a year-over-year basis. Retail sales came in better than expected at 1.3%, while the ex-autos reading came in better at 1.3%. Some of the strength in retail sales was attributed to Floridians replacing items after the most recent hurricane. Initial Jobless claims came in less than expected at 222k, while continuing claims ticked higher to 1517k.
The S&P 500 gave back 0.7%, the Dow was flat, the NASDAQ lost 1.6%, and the Russell 2000 fell 1.8%. The yield curve inverted further as the 2-year yield increased by nineteen basis points to 4.50%, and the 10-year yield fell one basis point to 3.82%. Commodity prices fell as concerns mounted on global economic growth. Oil prices fell 10% or $8.90 to close at $80.60 a barrel. Of note, OPEC + lowered their 2022 and 2023 oil demand estimate. Gold prices fell $18 to $1750.80 an Oz. Copper prices fell 7% or 0.29 to close at 3.636 a Lb.
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