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Weekly Market Update 10/02/2022

by Justin J. Long CFP®, on Oct 02, 2022

Our thoughts this week are with our advisors, clients, family and friends in the destructive path of Hurricane Ian.

As someone who lived in Florida for several years, I still have some of my closest friends and colleagues in the path. Fortunately we have heard from everyone, and while there are no major injuries, the devastation is extensive.

One of our advisors spent one day last week helping clients "batten down the hatches" in Myrtle Beach. It is in these moments, as hard as they may be for those involved, that we are honored to be there in any way we can. Our care for our clients extends far beyond the analysis of their portfolios, and if there is anything you or your loved ones have weighing on you, please reach out.

And now on to the recap of this week:

Weekly Wrap

Good riddance September. It was not nice knowing you, which is often the case. This year, though, you were particularly mean. Including this week's losses, the Dow, Nasdaq, S&P 500, Russell 2000, and S&P Midcap 400 declined 9.0%, 10.5%, 9.3%, 9.7%, and 9.4%, respectively, in September.

This week had the same feeling of desperation as recent weeks have had. The desperation was rooted in concerns about rising interest rates, the extreme volatility seen in currency and bond markets, and worries that the global economy is headed for a recession. 

Aside from that, there was a nagging concern that the volatility across capital markets and the rapid increase in interest rates are going to lead to a "financial accident" that could have systemic implications. That worry was a major headwind and it was given some credence when the Bank of England (BoE) stepped in Wednesday to buy UK government bonds in a bid to restore orderly market conditions.

That move by the BoE was reportedly precipitated by pension funds running into trouble with derivative positions that were leading to margin calls and forced selling. The BoE was slated to begin selling gilts next week. It was forced to postpone that effort, and instead it will carry out temporary purchases of UK government bonds between September 28 and October 14.

The stock and bond markets staged a notable rally on Wednesday following the decision. The S&P 500 jumped nearly 2.0% and the 10-yr note yield pivoted from 4.00% to 3.75%.

The British pound also found some welcome support after hitting a record-low against the dollar earlier in the week when the BoE held off with any support measures, saying only that it will make a "full assessment" of matters at its next scheduled meeting. The untenable action in the bond market and mounting losses for pension funds, however, ultimately forced the BoE's hand.

The good vibes from the BoE announcement were short-lived. On Thursday Prime Minister Truss said she will be sticking with her tax cut plan, the announcement of which last week was the source for the sharp selling of gilts and the pound.

Everything that was gained on Wednesday in the stock market was given back on Thursday and then some. 

There were other factors in play for yet another losing week. One of the biggest overhangs was the weakness in Apple (AAPL). It dropped 8.1% this week, with most of those losses coming on Thursday and Friday. The selling was attributed to worries about demand for the new iPhone. BofA Securities downgraded Apple on Thursday to Neutral from Buy, citing concerns about negative estimate revisions being driven by weaker consumer demand.

Apple's problems bled over to other mega-cap names, as well as supplier stocks, the major indices, and a plethora of funds that hold it as a core position. The Vanguard Mega-Cap Growth ETF (MGK) declined 3.4% this week, leaving it down 10.7% for the month.

The loss of leadership from Apple weighed heavily on investor sentiment and contributed to the S&P 500 breaking down to new lows for the year. Most stocks, though, contributed to that breakdown, including Nike (NKE), which slumped 12.8% on Friday after reporting a huge inventory build (+44% yr/yr) for its fiscal Q1 and warning that it expects to face continued gross margin pressure in fiscal Q2. Nike's challenges, and an earnings warning from Rent-A-Center (RCII), added to the market's slowdown worries.

The only sector to end the week with a gain was energy (+1.8%). The remaining ten sectors recorded losses ranging from 0.7% (materials) to 8.8% (utilities).

It didn't help matters this week that most Fed officials with speaking engagements spoke to the need to keep raising rates to get inflation under control. Cleveland Fed President Mester (FOMC voter) arguably had the most damning remark for the stock market, saying that policy rates are not yet at the restrictive level. Separately, a record-high 10.0% yr/yr increase for CPI in the eurozone seemingly solidified expectations for a 75-basis point hike by the ECB at its October meeting.

That CPI number was out on Friday along with the PCE Price Index for August. The latter showed a slight moderation in the year-over-year rate to 6.2% from 6.4% in July; however, the core-CPE Price Index, which excludes food and energy, jumped to 4.9% year-over-year versus 4.7% in July. That indication, coupled with the lowest initial jobless clams reading on Thursday (193,000) since early May, continued to stoke concerns about the Fed pursuing an aggressive rate-hike policy.

The week also ended on a down note geopolitically. President Putin announced the unlawful annexation of four Ukraine regions on Friday, as expected. That move will not be recognized by Ukraine and most other countries, but since it is being recognized by Putin, it will raise the temperature around this conflict since he has said Russia will use any means necessary, including nuclear weapons, if its territory is threatened.

Altogether it was a tough end to the week, which brought a very tough month to a close while leaving a lot of bothersome issues unresolved and a stock market deeper in bear market territory.

DJIA 29590.41 28725.51 -864.90 -2.9 -20.9
Nasdaq 10867.93 10575.62 -292.31 -2.7 -32.4
S&P 500 3693.23 3585.62 -107.61 -2.9 -24.8
Russell 2000 1676.71 1664.72 -11.99 -0.7 -25.9


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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