U.S. and International Equities
U.S. Markets Finish Higher
Stocks finished higher as the S&P 500 Index ends its streak of five losing weeks in the past six. This week’s gains, Friday’s losses notwithstanding, can be credited to deeply oversold conditions and pervasive negative sentiment as the Federal Reserve (Fed) remains unrelenting in its raise-and-hold policy on interest rates. Next week, investors will be eagerly anticipating Thursday’s September Consumer Price Index report as well as the start of the third quarter earnings season.
Fixed Income Higher Amid Fed Policy
The Bloomberg Aggregate Bond Index finished the week higher as yields declined amid expectations that the Fed will maintain its hawkish stance the rest of this year following Friday’s hotter-than-expected jobs report. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, managed to finish the week higher, mirroring their equity counterparts. This week, the two-year Treasury yield, which is the most sensitive to Fed policy, rose above 4 percent again as it responded to the chorus of Fed speakers underscoring the central bank’s commitment to curbing inflation as the dollar moves higher.
Commodities Mostly Higher
Oil prices increased this week as OPEC+ announced a 2 million barrel per day reduction in oil production. This comes on the back of Europe’s continued energy supply concerns stemming from Russia’s invasion of Ukraine. West Texas Intermediate crude oil prices increased more than 10% through the past five days. The metals had a positive showing as both gold and silver have finished higher for the second straight week.
Economic Weekly Roundup
Eurozone Composite Purchasing Managers Index (PMI) was 48.1 for September, which represents a 20-month low. Output for both manufacturing and services declined, driven by elevated energy costs, rising inflation, and softening demand. The European economy continues to contract and shows few signs of reversing the trend.
Eurozone Retail Sales
Eurozone retail sales fell 2% year-over-year for the month of August, which is a sign that elevated inflation is negatively impacting European consumers. This is yet another data point which supports expectations that Europe will likely go into a recession in the near future if it isn’t in one already.
University of Michigan Consumer Sentiment improved to 58.6 in September, just above May’s level. Inflation expectations over the next year increased to 4.7% from 4.6%, adding risk that near-term inflation expectations have become unanchored. These signs point toward continued tightening by the Fed.
Weekly and Monthly Employment Report
Initial claims and continuing claims for unemployment insurance for the latest week both came in above the week prior. Labor market conditions remain tight even though there are some signs of slowing job growth, increasing layoffs, and higher unemployment.
Last month, the economy added 263,000 jobs, while the unemployment rate fell to 3.5%. The decline in the unemployment rate will likely frustrate the Fed as tight labor markets could drive up wages adding to the present inflation landscape.
The following economic data and potentially market-moving events are slated for the week ahead:
- Tuesday: NFIB Small Business Index (Sep)
- Wednesday: Producer Price Index (Sep), Treasury Budget (Sep), FOMC Minutes
- Thursday: Consumer Price Index (Sep), Hourly Earnings (Sep), Average Workweek (Sep), Weekly Initial and Continuing Unemployment Claims
- Friday: Retail Sales (Sep), Business Inventories (Aug), Export/Import Prices (Sep), University of Michigan Sentiment (Oct)
Meanwhile, 16 S&P 500 companies will report third quarter earnings, including major financials JPMorgan Chase, Wells Fargo, U.S. Bancorp, Morgan Stanley, PNC, and Citigroup.
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