Category: Weekly Grind

The Weekly Grind: October 2, 2023

Week in Review

The NASDAQ Composite managed to close higher last week, ending its lowing streak at 3. The Dow Jones Industrial Average wasn’t quite so lucky. It dropped 1.3%, bringing its year-to-date gain to just 1.1%. The US Dollar Index rose for the 11th straight week, only the second time in the index’s history that we’ve seen that feat. Next week, we’ll try to match the record set back in 2014. Interest rates continued to rise as well, with 5, 10, and 30-year Treasury yields all reaching their highest levels in more than a decade. Gold dropped 4% – it’s worst weekly performance in more than 2 years – and oil prices continued to drift higher.

Stocks lived up to (or in this case, down to) their seasonal reputation in September. Over the last 70 years, September has been the worst month for the S&P 500 index, resulting in an average decline of 0.6%. This year, the index fell 4.9% for the month. Ready for the good news? The fourth quarter is is typically the best of the year. Since 1950, stocks have risen 4.2% on average in Q4.

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The Weekly Grind: September 25, 2023

Make it 10

That’s 10 straight weeks of gains for the US Dollar Index. In the more than 40 years since the inception of the index, a streak of that length has only happened one other time: 2014. Back then, the Federal Reserve was still more than a year away from raising interest rates off the zero lower bound. This time, they’re nearing the end of one of the fastest tightening cycles in decades. Much like what we saw in 2022, stock prices have reacted poorly to the Dollar’s rally. Last week, the growth-oriented NASDAQ Composite led stocks lower with a 3.6% decline. The Dow Jones Industrial Average was moderately better, falling less than 2%. Meanwhile, 10-year Treasury rates rose to their highest level in more than 15 years.

The Federal Reserve surprised almost no one when they decided to keep their short-term interest rate unchanged at last week’s FOMC meeting. The Committee’s Summary of Economic Projections, though, where members detail their estimates for future economic data and policy actions, showed that officials are reticent to prematurely declare victory. Better-than-expected growth this year has the Fed looking at higher-than-expected rates in 2024 and 2025. In June, the FOMC had projected 100 basis points of rate cuts next year. In the September SEP, they cut that number in half.

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The Weekly Grind: September 18, 2023

The US Dollar index has risen for 9 weeks in a row. That’s only happened two other times: 2014 and 1997. Crude oil, meanwhile, has risen 10 of the last 12 weeks, and so has the price of 10-Year Treasury futures. Equity indexes were mostly unchanged for the week, and gold and bitcoin both rose modestly.

Nobody said getting inflation under control would be easy. After more than a year of decelerating price increases from last summer’s peak inflation rate, prices are heading the wrong way once again. Last week’s data release showed the Consumer Price Index jumped to 3.7% in August, up from June’s 3% annual rate, and still well above the Federal Reserve’s 2% annual target. A rebound in energy prices (thanks in part to the aforementioned rally in crude oil) is largely to blame for the disappointing inflation report, while the contribution from food and services continues to decline.

At this week’s FOMC meeting, Fed officials will have to contend with the troubling reversal in CPI while balancing the risks to economic growth.

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The Weekly Grind: September 11, 2023

Week in Review

Crude oil was the week’s big winner, climbing more than 2% to reach its highest levels of the year. That happened even as stock prices erased some of the prior week’s gains, led by a 1.9% decline in the NASDAQ Composite. The US Dollar index finished higher for the eighth straight week – only the third time it’s accomplished that feat in the last 40 years. The Dollar’s strength hasn’t been great for alternatives: Bitcoin had its lowest weekly close since March, and gold prices fell 1%.

Last Tuesday, Saudi Arabia decided to extend its current voluntary oil production cuts of million barrels per day to the end of the year. Russia extended voluntary production cuts of their own. Together, Riyadh and Moscow lead OPEC+, a consortium of oil producing countries that together attempt to influence the global oil market and maximize profit. The impact of OPEC+ production cuts on oil prices has a mixed historical record. Supply cuts are usually in response to weakening economic conditions, where declines in supply are often more than offset by an overwhelming drop in demand. This time, though, the group’s efforts are getting results. WTI Crude has risen from below $70 in June to almost $90 per barrel today.

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The Weekly Grind: September 5, 2023

Week in Review

Stocks ended August on a high note, as the NASDAQ Composite led large cap indexes with a 3.25% gain. The catalyst was US Treasury rates, which fell for the first time since early July. The US Dollar index, however, rose for the seventh straight week, a streak matched only once over the last 20 years. Gold notched its second straight week of gains, while crude oil jumped 7% to reach its highest level since November.

The labor market is still strong, but we’re starting to see signs of softening. Last week, we learned that job openings in July fell to 8.8M. That’s still more than the current number of unemployed persons in the BLS nonfarm payrolls report, but down sharply from last year’s peak of more than 12M openings. Friday’s job report confirmed the slowdown. Even though the economy added 187,000 jobs in August, negative revisions to payrolls from the prior two months totaled 110,000, resulting in a net of just 77,000 jobs. With those revisions, the unemployment rate rose from 3.5% to 3.8% – the highest mark in 18 months.

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The Weekly Grind: August 28, 2023

Week in Review

Growth stock rebounded last week, helping the NASDAQ climb 2% even while interest rates rose and the US Dollar strengthened for the sixth straight week. The Dow Jones Industrial Average didn’t participate in the rally, as the value-oriented index fell modestly. Gold gained after four weeks of declines, and crude oil dropped 1.75% to close back below $80 per barrel.

Federal Reserve Chair Jerome Powell delivered a lengthy address at the Jackson Hole Economic Symposium on Friday, potentially capping off the most dramatic cycle of interest rate hikes since the 1980s. While Powell acknowledged that inflation remains too high and the Fed is willing to raise rates further if they deem it appropriate to bring inflation down to their 2% goal, he believes the actions they’ve taken over the last year will allow them to “proceed carefully as we assess the incoming data and the evolving outlook and risks.”

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The Weekly Grind: August 21, 2023

Two familiar foes have returned for investors: higher interest rates and a strong US Dollar. Those two were responsible for the broad weakness in financial markets during 2022, and their resurgence was not well received by asset prices last week. Stock indexes fell more than 2%, as did crude oil. So-called ‘safe-havens’ weren’t any better. Gold dropped 1.3%, while Bitcoin had its worst week of the year.

It’s still early in the quarter, but data for Q3 has been overwhelmingly strong so far. Following retail sales, housing starts, and industrial production reports last week, the Atlanta Fed’s GDPNow GDP estimate (a model based solely on data that’s already been reported) was revised up to a 5.8% annual rate. That’s roughly triple the Blue Chip consensus and would mark the fastest pace of growth since the early 1980s (not including the post-COVID rebound). Meanwhile, the Conference Board’s Leading Economic Index just fell for the 16th straight month.

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The Weekly Grind: August 14, 2023

Week in Review

The selloff in growth stocks continued last week, driving the NASDAQ to its first back-to-back weekly losses of the year. The Dow Jones Industrial Average managed to close higher for the week, but it’s still the laggard of the large cap indexes in 2023. The US Dollar Index rose for the fourth straight week, as did long-term Treasury yields. Crude oil also continued its recent run, rising for the seventh straight week to end at its best level since November.

Inflation data continued to show positive developments in last week’s report. Even though CPI rose modestly from the prior month’s 3.0% year-over-year print, the 3.2% reading was still better than most analysts had forecast. The increase didn’t shift expectations for short-term interest rates, either. Futures markets indicate that the Federal Reserve will almost surely hold rates constant at next month’s FOMC meeting and that they’re most likely finished hiking interest rates for the year. Still, there’s quite a bit more data to come before the Committee meets again. Hawks argue that core inflation is still well above the Fed’s 2% annual target. Doves can point toward shorter-term measures of core prices: the 3-month annualized Core CPI dropped all the way to 3% in June.

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The Weekly Grind: August 7, 2023

Week in Review

Stock prices retreated after 3 consecutive weeks of gains, including the first one-day drop of more than 1% for the S&P 500 since May. Growth sectors took the brunt of the damage, with the NASDAQ Composite falling 2.85%. Crude oil bucked the weakness in other risk assets, riding OPEC production cut extensions to its highest close since last November.

Fitch downgraded long-term US government debt to a notch below AAA last week, citing recurring political battles over the debt ceiling and rising fiscal imbalances that will make it more difficult to service debt. Treasury yields spiked on the news, with both 10 and 30-year yields rising to their highest levels since last November.

Meanwhile, economic data continues to be healthy, despite survey data showing that lending standards are tightening and the manufacturing sector is in decline. Nonfarm productivity in the second quarter spiked to 3.7%, among its best readings over the last decade, while unit labor costs fell to their lowest level in 2 years. Friday’s payrolls report showed continued moderation in jobs growth, but the unemployment rate still managed to fall back to 3.5%. It’s hard to have a recession when employment levels are near the lowest levels of the past half-century.

Relatively Speaking

Market leadership has shifted in favor of cyclicals over the last month. Energy climbed out of the cellar to lead all sectors with a 6.1% gain, while both Financials and Industrials outpaced the S&P 500’s 0.5% gain. Information Technology, which had been a leader all year, dropped 1.4%.

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The Weekly Grind: July 31, 2023

Week in Review

The Dow Jones Industrial Average reached 13 consecutive days of gains last week before dropping sharply on Thursday. That matched the longest streak in more than 100 years. Despite the Dow’s impressive run, it was growth indexes that won the week: the NASDAQ Composite rose 2%, thanks to strong performance from a handful of mega caps after their Q2 earnings reports. Energy stocks also had a strong week, helped by a 4.5% rally in the price of crude oil.

The Federal Reserve hiked rates 0.25% on Wednesday, bringing the Federal Funds Target rate to the highest level in more than 20 years. It could very well be the final hike of this cycle, as inflation continues to moderate towards the Fed’s 2% annual target. Jerome Powell declined to declare victory at his post-meeting press conference, though. June’s promising CPI report was just one month of data, and there are 2 more inflation readings before the next FOMC meeting in September. The Chair was non-committal about what the next move might be, vowing to remain data dependent now that rates are clearly in restrictive territory.

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