Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
The major averages were all lower last week, with the S&P 500 and Nasdaq down after four-straight weeks of gains. The easiest scapegoat for the risk-off sentiment was the more hawkish commentary out of the Federal Reserve. The jump in Treasury yields also weighed on stocks as the yield on the US 10-year Treasury finished the week just shy of 3 percent. The dollar extended gains, while gold and oil were both down for the week.
The week's decline in prices also brought some ongoing headwinds back into focus for market bears, including thoughts that recent strength has just been a bear market bounce, inflationary pressures, stretched valuations, and geopolitical concerns.
On the other end of the spectrum, the peak inflation narrative continues to take hold with market bulls. They also find comfort in the recent strong labor market data and better-than-feared earnings reports.
The biggest data point from last week was retail sales. The report showed a decline in sales for the month of July, missing expectations for an increase. The recent drop in energy prices was a major contributing factor in the monthly decline.
Outside the U.S., Euro Zone inflation reached a new record high of 8.9 percent year-over-year in July, the highest since the euro was created in 1999, inciting more recession fears for the region.
This week is a good week for market-moving economic data. On Tuesday, we get Manufacturing and Composite PMI figures, along with Building Permits and New Home Sales. Home building activity is expected to decline, in tandem with home affordability, following this year’s increase in mortgage rates. On Wednesday, we get Durable Goods Orders. On Thursday, we get second quarter GDP, which is expected to remain unchanged at negative 0.90 percent, continuing to suggest a technical recession. Then we finish the week with Personal Income and Spending and the University of Michigan Sentiment report. Also on Friday, we see the Personal Consumption Expenditures price index. This is the Fed’s preferred measure of inflation, though the Consumer Price Index, or CPI, grabs more headlines. Economists expect to see a modest drop in this inflation measure, though its year-over-year number is expected to remain well above 6 percent.
Of course, a lot of attention will also go toward what Fed Chairman Jerome Powell will say during the Fed’s annual economic symposium in Jackson Hole, Wyoming. Markets are a bit concerned Powell could strike a more hawkish tone at the weeklong meeting.
As always, we will be watching and reporting back to you next week. Thank you.
