The Weekly Wrap: November 6, 2022

Week in Review

Stocks dropped last week, with the Nasdaq Composite leading the decline by falling 5.6%. The Dow Jones Industrial Average continued to show relative strength as it has all year, falling only 1.4%. The S&P 500 closed down 3.3%. Commodities bucked the selloff, as Crude oil ripped 5.4% higher to end the week at its highest level in a month. Gold rose 2.2% after having its largest 1-day gain in two and a half years on Friday. Bond yields resumed their rise after a 1-week hiatus, the Dollar was little changed, and Bitcoin fell slightly.

Jerome Powell disappointed investors who were hoping for a dovish pivot. While the Fed Chair acknowledged smaller hikes could be discussed at upcoming meetings, he said that September’s terminal rate expectations were too low, and we still have some ways to go before inflation reaches its target. In other words, it’s very premature to be thinking about a pause in interest rate hikes. Friday’s strong payrolls report added evidence to Powell’s suspicions that the US economy is still running too hot.

Market Internals

Long-term underlying trends in the index are still weak, with only 31% of members above their 200-day moving average. Shorter-term trends have improved, though, especially in non-growth areas of the market.

Uptrend breadth is weakest in Real Estate (3% of members above their 200-day average), Communication Services (8%), and Utilities (13%). The Energy sector continues to be a notable outlier, as a convincing majority of constituents are in uptrends on short, intermediate, and long-term timeframes. Industrials could be the next sector to see at least half of members in uptrends across all terms.

What’s Ahead

It’s a light week ahead on the economic data front, with only the Thursday CPI report likely to have a major impact on market action. Tuesday is mid-term election day in the United States. Friday is Veteran’s Day, so the bond market will be closed, but we’ll still get an update from the University of Michigan on consumer sentiment. We’re on the back end of earnings season now, with 85% of S&P 500 members having already reported third quarter results. Another 30 companies are set to publish results this week.

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