Weekly Market & Economic Update – 6/27/22

Market Update 

• Global Equities:  A bounce off technical long-term support for stocks helped equity markets break out of a three-week selloff, although the bear market narrative remains in place with the Fed still signaling rate hikes for the foreseeable future. The S&P 500 gained 6.5% during the week while the Nasdaq bounced off its long-term, 200-week moving average with a 7.5% move higher. The Dow Jones Industrial Average also moved higher, gaining 5.4% during the week. International stocks were relative underperformers, with Developed International equities up 3.7% and Emerging Markets up 2.5%.
• Fixed Income: 10-Year Treasury yields were volatile again this week, briefly revisiting 3.0% just a week after hitting 3.5%. The 10-Year ended the week at 3.13%. High yield bonds were able to at least temporarily break out of a brutal downtrend, gaining 1.3% during the week. Buyers remain skeptical of taking on credit risk with rumblings of a potential recession growing. High yield bond mutual funds and ETFs had outflows of $2.6 billion during the weekly period ended June 22nd.
• Commodities: Oil prices continued to slide lower, ending the week around $107 a barrel. President Biden has called for a gas tax holiday, which was met with a somewhat tepid response from congress and would only result in an 18-cents per gallon reduction at the pump, assuming gas companies elected to pass along the tax savings rather than retain them as profit. For the first time in 31 weeks, the Baker Hughes rig count declined, albeit only by one.

Economic Update

• Powell Testimony: Federal Reserve Chair Jerome Powell testified Wednesday and Thursday before the Senate and House, respectively. In his remarks, Powell insisted that the Federal Reserve has sufficient tools to combat inflation, but when pressed, admitted that the global supply-side issues impacting food and energy prices could not be resolved via interest rate increases. Powell acknowledged that recession is a very real possibility but insisted that the Fed’s actions alone would not provoke a recession.
• Sentiment Bottoming Out? The American Consumer may still be spending, but their attitudes toward inflation have become increasingly more pessimistic. The University of Michigan Consumer Sentiment Survey showed consumers expressed the highest level of uncertainty over long-run inflation since 1991. The index reading fell to a record low of 50, a 14.4% fall from May and a 41.5% decline year-on-year. A separate survey, the American Association of Individual Investors (AAII) Investor Sentiment Survey, showed the most bearish sentiment since 2008 and the 6th highest bearish reading in the history of the weekly survey, which goes back to 1987.
• Employment Still Healthy: The unfortunate consequence of the Fed tightening will likely be an uptick in the unemployment rate, however that has yet to play out. Weekly jobless claims ticked lower last week and remain near historic lows. Initial claims fell to 229,000 from the prior week’s 231,000.

Chart of the week

The Chart of the Week is the Nasdaq Composite Weekly performance, with the 50-week (blue line) and 200-week (red line) moving averages. The 200-week moving average marked the bottom of 2020’s Covid-19 selloff, and after breaking below the 50-week level, the 200-week represents critical support for the Nasdaq. This week’s rally was near textbook bounce from just above that support level; however, until we see a trend reversal in the form of higher highs and higher lows on the chart, the bears will remain fully in control.