July 25, 2022

Weekly Market Update

By Michael McKeown, CFA, CPA - Chief Investment Officer

Weekly Market Update

Chart of the Week

The Federal Reserve Open Market Committee (FOMC) is set to meet this week. The FOMC is widely expected to raise interest rates by 0.75%, moving the Fed Funds target rate to a range of 2.25% to 2.50%. Long-term interest rates fell over the past month while short-term rates continued rising. Markets anticipate more interest rate hikes throughout the rest of 2022. When short-term rates are above long-term rates, the yield curve is inverted. The forward prices indicate the three-month Treasury bill will be higher than the 10-year yield in the months ahead. This could give the FOMC cause for concern, as inversion typically indicates weaker growth ahead. Of course, this depends on how inflation data evolves.

U.S. Treasuries - Yeild Curve is Flat

What We’re Reading

Shifting Gears: Private Equity Report Midyear 2022 – Bain & Co.
Little Ways the World Works – Morgan Housel
How the Labor Market is Impacting 401k Plans – Plan Sponsor
Gazprom Declares Force Majeure: How We Got Here – Zeihan on Geopolitics

Podcast of the Week

Ivy Zelman on the Outlook for U.S. Housing – Macro Hive

The Past Week

The outlook for housing continues to decline, with the National Association of Home Builders survey falling to its lowest level in two years. Leading economic data continued a negative trend with more jobless claims. The Philadelphia Fed New Orders and Purchasing Manufacturing Index data declined as well.

The Past Week

The Week Ahead

Second quarter GDP will be reported this week and may be negative. This would mark two consecutive quarters of negative growth, which meets the traditional technical definition of recession. The media will debate whether the economy is in fact in a recession. On the one hand, moving the goalposts from two negative GDP quarters does not seem right. On the other hand, it is hard to declare a recession with jobs growing at 372,000 in June and a monthly average of 457,000 jobs created over the last 6 months.

Regardless, the discussion is a distraction from what matters to markets, which is earnings. We enter the heaviest week of the quarter with 169 S&P companies reporting, representing nearly half of the market value. This list includes Apple, Microsoft, Amazon, Google, and Facebook. For companies that reported this quarter, earnings grew 6% on average over the past year with 67% of companies above expectations. Earnings estimates are beginning to come down for the next year.

The Week Ahead

Talk to you next week.

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