Weekly Capital Markets Update

Global equity markets finished lower for the week. In the U.S., the S&P 500 Index closed the week at a level of 4,058, representing a loss of 4.02%, while the Russell Midcap Index moved 3.32% lower last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned -2.93% over the week. As developed, international equity performance and emerging markets were mixed, returning -1.90% and 0.55%, respectively. Finally, the 10-year U.S. Treasury yield moved higher, closing the week at 3.04%.

Those who have ventured to Jackson Hole in the winter months and have ridden a tram to the top of the mountain resort have likely noticed on the northern wall of the peak what is considered the most dangerous and difficult ski trail in the world. The steep, narrow couloir that sits amongst this range requires daredevil athletes to jump down into an approximate 12-foot cliff before demanding a quick and agile turn right followed by an equivalent maneuver left, all to create a “soft-landing” into the open bowl of deep powder snow at the bottom (few of even the most skilled athletes are successful). While the winter months are still distant in the future, Jerome Powell and the other members of the Federal Open Markets Committee (FOMC) wrapped up their highly anticipated Jackson Hole symposium last week, where they attempted to create their own “soft-landing” for the economy in what appears to be just as difficult, if not more, task than skiing this infamous terrain.

Ahead of Jerome Powell’s speech at Jackson Hole last Friday, markets were mixed for the week. The S&P 500 kicked off last week with a continuation of the sell-off from the previous Friday, dropping an additional 2.14% on Monday, followed by a modest decline of -0.22% on Tuesday. Tuesday’s PMI composite index reading of 45.0 indicated a second consecutive month of declining business activity, with production and output falling for manufacturing and services providers. Additionally, new home sales reported for July showed a drastic fall from 590,000 in June to just 511,000. This figure would be significantly below consensus expectations of 575,000. Both PMI and new home sales readings had market participants noticing the cooling of the economy and the impact of rising interest rates.

After falling earlier in the week, the market would ultimately rebound on the heels of a second-quarter gross domestic product (GDP) revision that indicated the economy shrunk by a lesser amount than was previously reported, -0.6% vs. -0.9%. At the same time, jobless claims for the week came in at 243,000, below the 255,000 consensus expectation. Before Powell’s highly anticipated speech Friday morning, the market received more positive news as Core PCE, the Fed’s preferred inflation measuring tool, rose 4.6% year-over-year and 0.1% over the past month, both resulting in softer than expected figures and a clear result of positive effects monetary tightening is having on reducing prices.

Based on the past week’s economic data, it would appear that Fed Chair Powell would deliver words to give confidence in the ability to create a soft landing. Yet, within the first few minutes of the speech, the confidence was far from evident. Regarding the recent inflation print, Powell stated, “While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.” Regarding the aggressiveness of future hikes, Powell said, “Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy,”. Both comments contradict what the market would have liked to hear regarding the Fed’s potential less hawkish pivot later this year. As a result, the S&P 500 would ultimately close the week down 4.02%.

Jerome Powell’s delivery was short and direct. While we did not learn any greater detail on whether the Fed will succeed in its soft-landing goal, we did receive confirmation of its determination and reach price stability. Investors should consider all the information discussed within this market update and many other factors. However, with so much data and so little time to digest, we encourage investors to work with experienced financial professionals to help process all this information to build and manage the asset allocations within their portfolios consistent with their objectives, timeframe, and risk tolerance.

Best wishes for the week ahead!

PMI data is sourced from S&P Global. PCE data was sourced from the Bureau of Economic Analysis. Housing Data sourced from the U.S. Commerce Department. Jobless Claims sourced from the Bureau of Labor Statistics. Equity Market and Fixed Income returns are from JP Morgan as of 8/26/22. Rates and Economic Calendar Data from Bloomberg as of 8/26/22. International developed markets are measured by the MSCI EAFE Index, emerging markets are measured by the MSCI EM Index, and U.S. Large Caps are defined by the S&P 500 Index. Sector performance is measured using the GICS methodology.

Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.