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Weekly Market Commentary – 10/14/2022

-Darren Leavitt, CFA

Capital markets continued to be extremely volatile.  All eyes were on the US Consumer Price Index (CPI) print on Thursday, which showed no signs of inflation moderating.  The headline number increased by 0.4%, above the consensus estimate of 0.2%. The measure increased by 8.2% on a year-over-year basis, slightly lower than the 8.2% reading in August.  However, Core CPI, which excludes food and energy prices, increased by 0.6%, which was higher than the 0.5% expected increase.  The year-over-year figure hit a 40-year high coming in at 6.6% versus August’s print of 6.3%.

The data initially hammered the market, sending the S&P 500 to a new low for the year 3491 and to a level that marked a 50% retracement from the post-Covid highs.  The 50% retracement induced a technical buy signal and prompted algorithmic programs to kick in.  The bounce off of the lows was extended as shorts were forced to cover.  At the end of the day, the S&P 500 nearly had a 6% intraday range closing near the highs of the session.  However, the rally was short-lived as markets reversed on Friday and gave back most of the previous day’s gains.

The hotter-than-expected data solidifies the expectation that the Federal Reserve will increase its policy rate by 75 basis points on November 2nd and increases the probability that the Fed will raise by another 75 basis points in December.  More tightening from the Fed increases the likelihood of a recession, a concern voiced by JP Morgan CEO Jamie Diamond early in the week.

Across the pond, the new UK Prime Minister, Liz Truss, reversed course on some of her proposed fiscal measures and fired her Finance Minister.  At the same time, the Bank of England closed its emergency bond-buying program.  The combined actions ignited another sell-off in UK Gilts, providing investors another reason to go to the sidelines.

3rd quarter earnings kicked off in earnest this week, with many of the Financials reporting better-than-expected results.  JP Morgan, Wells Fargo, Citi Bank, and US Bank Corp came in with better results and helped the financial sector post a gain for the week.  Other notable positive results came from United Health Care and Pepsi. It is also worth mentioning that Kroger will be buying Albertsons in a $24.6 billion merger.

The S&P 500 lost 1.6%, the Dow gained 1.2%, the NASDAQ fell 3.1%, and the Russell 2000 gave up 1.2%. The US Treasury curve inverted more on the hotter-than-anticipated inflation data.  The 2-year yield increased by twenty basis points to 4.5%, while the 10-year bond yield increased by thirteen basis points to 4.01%.   Oil prices gave up some of last week’s monster rally.  WTI prices fell by 7.3% or $6.47 to $85.71 a barrel.  Gold prices decreased by 3.5% or $58.3 to $1649.10 an Oz. Copper prices increased by $.02 to $3.41 an Lb.

Investment advisory services offered through Foundations Investment Advisors, LLC (“FIA”), an SEC registered investment adviser. FIA’s Darren Leavitt authors this commentary which may include information and statistical data obtained from and/or prepared by third party sources that FIA deems reliable but in no way does FIA guarantee the accuracy or completeness.  All such third party information and statistical data contained herein is subject to change without notice.  Nothing herein constitutes legal, tax or investment advice or any recommendation that any security, portfolio of securities, or investment strategy is suitable for any specific person.  Personal investment advice can only be rendered after the engagement of FIA for services, execution of required documentation, including receipt of required disclosures.  All investments involve risk and past performance is no guarantee of future results. For registration information on FIA, please go to https://adviserinfo.sec.gov/ and search by our firm name or by our CRD #175083. Advisory services are only offered to clients or prospective clients where FIA and its representatives are properly licensed or exempted.