Weekly Market Commentary – 10/28/2022
-Darren Leavitt, CFA
US financial markets followed through with another week of gains as investors gravitated toward the notion that the Fed would temper its monetary policy after the November meeting. Less-than-expected rate hikes from the Royal Bank of Australia and the Bank of Canada fostered the idea and pushed yields lower across the yield curve. The European Central Bank increased its policy rate by an expected 75 basis points and left its quantitative easing mechanisms in place.
3rd quarter earnings were mixed with mega-cap technology names disappointing while seemingly everything else managed to counterbalance those losses. Microsoft, Google, Meta, and Amazon all missed the mark, while Apple was able to counter some of Tech’s weakness in Friday’s session. Honeywell, Caterpillar, Exxon Mobile, and Chevron had solid quarters and promoted market leadership in the industrial and Energy sectors.
In the United Kingdom, Rishi Sunak became Prime Minister and vowed to reverse the fiscal policy mistakes made by former Prime Minister Liz Truss. In China, President Xi consolidated power and kicked off his third term. Xi has surrounded himself with loyalists and announced a wide range of measures to advance China’s interests globally. A continued Zero Covid stance with more lockdowns and the likelihood of more regulatory crackdowns on Chinese technology companies catalyzed a sell-off in Chinese ADRs.
Economic data showed an uptick in economic activity. The first look at 3rd quarter GDP showed a growth rate of 2.6%, above the consensus estimate of 2.1%. The GDP Price Deflator advanced by 4.1%, much lower than the prior reading of 9%. New Home Sales increased by 603k as 30-year mortgage rates topped 7%. Headline PCE and Core PCE were in line with estimates at 0.3% and 0.5%, respectively. October Consumer Confidence came in at 102.5, lower than the previous reading of 107.8. The final reading of the University of Michigan’s Consumer Sentiment came in lower, with a print of 59.5. Initial Jobless claims came in at 217k, while Continuing Claims ticked up to 1438k.
The S&P 500 gained 4%, the Dow advanced 5.7%, the NASDAQ added 2.2%, and the Russell 2000 led the way with a 6% increase. The yield curve flattened as the 2-year yield decreased by nine basis points to 4.42% while the 10-year bond yield fell by twenty basis points to 4.01%.
Oil prices increased by 3.5% or $2.98, with WTI closing at $87.89 a barrel. Gold prices fell by $14.10 to $1644.7 an Oz. Copper prices fell by $0.04 to 3.43 an Lb. The US dollar was mixed, gaining against the Chinese yuan and the Japanese Yen and falling against the UK Pound and EU Euro.
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