Weekly Market Commentary – 7/15/2022

-Darren Leavitt, CFA

It was an extremely busy week on Wall Street with a full calendar of economic data and the start of 2nd quarter earnings. Growth concerns fostered more selling in equities and commodities while the long tenures of the yield curve rallied. US dollar strength continued as the Euro broke parity with the Dollar on rate differentials and concerns related to a breakdown of Italy’s parliament. Prime Minster Draghi penned his letter of resignation after losing support from his major coalition party, but the Italian President dismissed the resignation. US President Joe Biden was in the Middle East, where there were hopes that meetings with the Saudis would yield an announcement of increases in oil production, but no announcement was made.

The S&P 500 fell 0.9%, the Dow shed 0.2%, the NASDAQ lost 1.6%, and the Russell 2000 gave up 1.4%. The US Treasury curve inverted significantly over the week as the 2-year note yield increased by one basis point to 3.13%. The 10- year yield fell by seventeen basis points to close at 2.93%. The inversion suggests that Fed will continue on its path of rate hikes at the expense of economic growth in the future. This notion of slower economic growth has impacted commodities as well. Over the last month, we have seen oil and industrial metals sell-off. Oil prices fell 7.2% or $7.66 to close at $97.94 a barrel but had traded as low as $92 and change. Copper prices fell 8% on the week closing at $3.22 an Lb. Gold prices fell by $39.8 or 2.2% to $1702.8 an Oz. Dollar strength has impacted commodities as well. Generally speaking, a strong dollar weakens commodities. The Euro/Dollar cross broke parity this week while the Japanese Yen fell to 138.56 against the Dollar.

Economic data was highlighted by a stronger than expected June CPI print. The headline number came in at 1.3% versus the street’s expectation of 0.9%. On a year-over-year basis, prices were up 9.1%, the highest reading since 1982. Core CPI that excludes food and energy was up 0.7% in June, which was also higher than expected. Energy prices increased 41.6% year-over-year, while food prices increased by 9.1%. The shelter index was up 5.6%, and Used Car prices were up 7.1% from a year ago. The June Producers Price Index (PPI) was also hotter than expected at 1.1% the street was looking for 0.8%. The reading is up 11.3% year-over-year. The two inflation readings prompted an increased probability of a 1% rate hike by the Federal Reserve in a couple of weeks. Retail sales in June were better, coming in at 1% versus 0.8%. The Preliminary July reading of the University of Michigan’s Consumer sentiment saw a surprise uptick to 51.1% on lowered inflation expectations.

2nd quarter earnings kicked off with disappointment from financial stalwarts JP Morgan and Morgan Stanley. The CEO of JP Morgan reiterated his concerns for the economy and the uncertain environment. The earnings results and commentary put pressure on the financials. On Friday, Citigroup announced an excellent quarter, and Wells Fargo indicated that their Net Interest Margin would increase by 20% over 2021. The news helped markets rebound on Friday. Additionally, United Healthcare beat on the top and bottom lines and provided better than expected guidance for the coming quarter and full year.

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