U.S. and International Equities
U.S. Markets Finished Mixed
The major U.S. market indexes finished mixed this week as growth names outperformed value. Second quarter earnings results for many growth names were not as weak as some analysts had feared, which has led to their reversal of fortunes for the last two weeks. Energy posted the worst return among sectors this week as oil prices tumbled to a six-month low.
Fixed Income Flattish
The Bloomberg Aggregate Bond Index finished the week little changed as bond investors re-assess prospects for economic growth after the strong July jobs report. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, gained ground following a solid week for the Nasdaq.
Commodities Mostly Lower
Amid energy supply challenges in Europe, West Texas Intermediate crude oil has fallen over 10% this week to price levels last seen before the Eastern European conflict. U.S. gasoline demand has softened while OPEC+ announced a marginal increase in output for September. The major metals, gold, silver, and copper, finished mixed amid concerns over demand.
Economic Weekly Roundup
U.S. Manufacturing Continues to Expand
U.S. manufacturing expanded in July, but at the slowest rate in over two years. The backlog of orders fell for the second consecutive month and now sits at its lowest level since June 2020. Falling backlogs should ease some of the pricing pressures created by impaired supply chains.
Aggressive Interest Rate Move by the UK
The Bank of England (BOE) raised interest rates by 50 bps, which is the largest interest rate increase in 27 years. Also, bank officials warned that the United Kingdom economy will likely enter a recession this year with inflation peaking at 13% by the end of 2022.
Weekly and Monthly Employment Report
Initial claims for unemployment insurance for the latest week came in higher than the prior week but matched economists’ expectations. Continuing claims, however, increased from the prior week and missed economists’ forecasts. Both initial unemployment claims and continuing claims have increased slightly in recent weeks. The 4-week moving average of initial claims is now the highest since November 2021.
In July, the U.S. economy added over 500,000 jobs as the unemployment rate fell to 3.5%. Economists expected job growth would total just 250,000 last month. Because of today’s employment report, including a larger-than-expected increase in average hourly earnings, market participants increasingly expect the Fed to hike rates by 0.75% in September.
The following economic data and potentially market-moving events are slated for the week ahead:
- Tuesday: NFIB Small Business Index (Jul), Q2 Productivity and Unit Labor Costs
- Wednesday: Consumer Price Index (Jul)
- Thursday: Weekly Initial and Continuing Unemployment Claims, Producer Price Index (Jul)
- Friday: University of Michigan Consumer Sentiment (Aug), Export/Import Price Index (Jul)
Next week, over 20 companies report second quarter earnings results as we head toward the end of earning season.
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