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Weekly Market Update 07/31/2022

by Justin J. Long CFP®, on Jul 31, 2022

In what was an extremely busy week for earnings reporting, as well as Congress moving on several initiatives, and the FOMC meeting – to say this week gave us a lot of data would be an understatement. I will cover much of it in this email and we will also be covering it in greater detail on Wednesday at our Quarterly Market Update. 

Please join us this Wednesday for the next Quarterly Market Update, which will be held at 12:30pm. You can sign up using the link here for the live session, to have the recording sent to you, and to submit questions.

And now on to the recap of this week:

Weekly Wrap

Anyone following the market this week has a right to feel exhausted going into the weekend. It was a huge of week of news that was ultimately matched with some big gains for the week that padded some huge gains for the month, which were driven in part by short-covering activity and a bid to add back exposure to equities following the brutal first half of the year.

Briefly, roughly 175 S&P 500 companies reported their results for the June quarter, the FOMC held a policy meeting, the economic calendar featured the Advance Q2 GDP Report, President Biden held a call with President Xi mainly to discuss Taiwan and Russia, Senator Manchin had a stunning reversal of position and reached an agreement with Senator Schumer on the provisions for the Inflation Reduction Act of 2022, and Congress passed a $280 billion bill, which included $52 billion for increasing semiconductor manufacturing capacity, that is designed to fend off competition from China.

Tucked in between was a halting earnings warning from Walmart (WMT) that was pinned on food and fuel inflation detracting from spending in general merchandise categories, a warning from Best Buy (BBY) about a further softening in demand for consumer electronics, a warning from Stanley Black & Decker (SWK) about weakening customer demand, the highest year-over-year reading for the PCE Price Index (6.8%) since 1982, the third straight monthly drop in Consumer Confidence, and a bleak New Home Sales report for June.

The bad news, however, didn't derail the stock market, which locked in on better-than-feared results and/or guidance from Alphabet (GOOG), Microsoft (MSFT), Apple (AAPL), and Amaon.com (AMZN), a marked drop in Treasury yields, and the idea that the weak economic data would compel the Fed to take less aggressive steps with future rate hikes.

The Federal Reserve was central to this week's action. It raised the target range for the fed funds rate on Wednesday by 75 basis points to 2.25-2.50%, as expected. Fed Chair Powell, however, did a commendable job at his press conference of walking the line between needing to be tough still on fighting inflation but conceding that it would likely be appropriate in coming months to slow the pace of rate increases given how frontloaded the rate hikes have been to this point.

He didn't rule out another 75-basis point rate hike at the September meeting. He said the data would dictate that decision. He also said that the Fed wouldn't be offering any clear-cut guidance like it had been doing but would instead let the data dictate policy decisions now on a meeting-by-meeting basis.

There was ample room for interpretation in the wake of his remarks, but the prevailing view of the market was that Mr. Powell opened the door to the Fed taking a step down with its aggressive rate-hike posture. That was enough to launch a post-FOMC rally on Wednesday that was sustained through Friday's close.

Notably, the fed funds futures market is pricing in two rate cuts in the first half of 2023, according to the CME's FedWatch Tool. Mr. Powell didn't say anything that supported such thinking, yet market participants have been seemingly clinging to an expectation that weakening economic data will be the pivot point for the Fed.

The second straight quarter of a contraction in real GDP (-0.9%) contributed to that view; meanwhile, the Treasury market moved in a direction that corroborated that thinking. The 2-yr note yield dropped nine basis points this week to 2.90% and the 10-yr note yield fell 14 basis points to 2.64%, leading to a further inversion of the 2s10s spread that is seen by many as a harbinger of weak growth and/or a recession.

In that vein, it would be remiss not to point out that growth stocks once again led this week's rally effort. The Russell 3000 Growth Index rose 4.9% versus a 3.4% gain for the Russell 3000 Value Index.

Clearly, though, the otherwise solid 3.4% gain in the Russell 3000 Value Index underscored that there was broad-based buying interest. All 11 S&P 500 sectors gained ground this week with gains ranging from 1.6% (consumer staples) to 10.3% (energy). The latter closed out a huge week on the back of stronger-than-expected earnings results from Chevron (CVX) and Exxon Mobil (XOM).

For the month, every sector advanced. Gains ranged from 3.1% (consumer staples) to 18.9% (consumer discretionary). A surge in Tesla (TSLA) and Amazon.com (AMZN) paved the way to that massive gain for the consumer discretionary sector, which is still down 20.4% for the year.

Altogether the Nasdaq Composite soared 12.4% in July followed by the S&P Midcap 400 (+10.8%), the Russell 2000 (+10.4%), the S&P 500 (+9.1%), and the Dow Jones Industrial Average (+6.7%). The S&P 500, which flirted with 3,600 in mid-June, closed July at 4,130.29.

  • Dow Jones Industrial Average: -9.6% YTD
  • S&P Midcap 400: -11.6% YTD
  • S&P 500: -13.3%
  • Russell 2000: -16.0%
  • Nasdaq Composite: -20.8%
DJIA 31899.29 32845.13 945.84 3.0 -9.6
Nasdaq 11834.11 12390.69 556.58 4.7 -20.8
S&P 500 3961.63 4130.29 168.66 4.3 -13.3
Russell 2000 1806.88 1885.23 78.35 4.3 -16.0

As always, it is my pleasure to bring you this weekly update. If this or anything else is causing you pause or you would like further details, please feel free to reach out to me and we can schedule some time to chat. 

Justin J. Long CFP®
Founder/Lead Advisor
Diazo Wealth Group
702-745-1800 Direct
702-278-6560 Cell

Upcoming Economic Calendar

Real Time Economic Calendar provided by Investing.com.

Source: 1. FactSet

Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.

Source: https://www.schwab.com/resource-center/insights/content/schwab-market-update 

The data provided is for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. The information contained here is not guaranteed as to accuracy or completeness. All economic and performance information is historical and does not guarantee future results.

The Dow Jones Industrial Average is a price-weighted index comprising 30 widely traded blue chip U.S. common stocks. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the NASDAQ stock exchange. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. The Cboe Volatility Index (VIX) shows the market’s expectation of 30-day volatility and is constructed using the implied volatilities of a wide range of S&P 500 Index options. Weekly and year-to-date figures for the VIX show percentage changes, not investment returns. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.

The Treasury yield curve is derived from available U.S. Treasury securities trading in the market and is provided directly by the U.S. Federal Reserve. The spread measures the difference in yield between two government securities. A normal (positive) yield curve occurs when longer-term rates are higher than shorter-term rates. The opposite holds true for an inverted yield curve. Year-to-date changes in U.S. Treasury bond yields are shown in basis points (bps). One hundred basis points equals one percent.

Oil prices are represented by West Texas Intermediate (WTI) crude oil.

The G20 countries comprise a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, and over 75% of global trade.

Innovative Adviser Solutions, LLC, a registered investment adviser, dba Diazo Wealth

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