Week in Review
Stocks in the US rallied almost 5% for their best week since June. The Dow Jones Industrial Average is the year-to-date leader, down 14.5%, while the Nasdaq Composite, which led gains last week, is still down more than 30% in 2022. US Treasury notes fell for the twelfth straight week as interest rates hover near 15-year highs. Crude oil shook off sizeable early week losses to close little changed, while Gold and Bitcoin both rose moderately. The US Dollar index dropped more than 1%, its worst weekly performance since July.
Market action continues to be driven by expectations surrounding the path of Federal Reserve interest rate hikes over the coming months. St. Louis Fed President James Bullard – a voice that has led policy tightening over the last 18 months – was among the first to begin talking publicly about a pause in rate hikes next year when he spoke at an event early last week. Markets are still pricing in two additional 75-basis point hikes this year, but speculation is mounting that the December rate increase could be lowered to half a point instead.
GDP has fallen for two consecutive quarters, satisfying a widely used rule of thumb for defining recessions, but we still don’t have confirmation of the downturn from the NBER, the nation’s official arbiter of recessions. Notably, 2Q GDP was revised significantly higher on the back of strong consumer spending.
Measures of inflation remain well above the Federal Reserve’s 2% target, but CPI decelerated in the most recent month. Unemployment is back down to 3.5%, and despite recession fears, consumer spending, measured by retail sales, remains robust.
We’ve got a busy week ahead of us, with a full slate of economic data scheduled for release ahead of next week’s FOMC decision and roughly one-third of S&P 500 companies scheduled to report earnings. We kick things off with preliminary October PMI survey results from S&P Global on Monday, along with the Chicago Fed National Activity index. August home prices are published on Tuesday morning, followed by Consumer Confidence from the Conference Board. New home sales are slated for Wednesday, then things heat up on Thursday with September factory orders and our first look at third quarter GDP. The PCE deflator, the Fed’s preferred measure of inflation, comes out Friday morning beside personal spending data. University of Michigan survey results and pending home sales are also due.