Weekly Capital Markets Update

Global equity markets finished higher for the week. In the U.S., the S&P 500 Index closed the week at a level of 4,130, representing an increase of 4.28%, while the Russell Midcap Index moved 4.05% higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 4.35% over the week. As developed, international equity performance and emerging markets were higher returning 2.11% and 0.42%, respectively. Finally, the 10-year U.S. Treasury yield moved lower, closing the week at 2.65%.

The last week of July proved pivotal to the domestic economy with a large amount of economic data releases (including macro and micro information) and a substantial rate hike by the Federal Reserve following their most recent Federal Open Markets Committee (FOMC) meeting. Economic data releases included the following:
• Consumer Confidence
• New Home Sales
• 2nd Quarter Gross Domestic Product (GDP)
• Personal Consumption Expenditures price index (PCE)
• Numerous 2nd Quarter Corporate Earnings Reports

Throughout the remainder of this update, we will examine these data releases, market reaction to all of the economic data, and the 75 basis point (i.e., 0.75%) increase in the Fed Funds Target Rate.

On Tuesday, the Conference Board reported that consumers’ confidence moved lower in July. This decrease is the third consecutive month of decline for this index. The index value of 95.7 for July was down from 98.4 in June and marked the lowest level in more than a decade. The results suggest that consumers are concerned about an inflation-induced recession, particularly from rising gas and food prices.

On the housing front, signed contracts to purchase existing homes dropped 20% in June compared with the same month a year ago, the National Association of Realtors (NAR) said on Wednesday. The decline, not surprisingly, coincided with a sharp jump in mortgage rates over the past few months.

Wednesday was also the day the Federal Reserve announced a 75 basis point increase in the Federal Funds Target Rate, in line with market expectations. Chairman Powell’s comments were somewhat less aggressive after the hike concerning future rate increases. This more dovish tone from the Chairman created an equity market rally that continued for the remainder of last week.

Even the release of contracting 2nd Quarter GDP results did not cool the equity market rally. Gross domestic product fell 0.9%, on an annualized basis, for the 2nd Quarter. This reading followed a 1.6% decline in the 1st Quarter and was worse than the consensus estimates of a gain of 0.3%. By the often cited technical definition, this contraction of the domestic economy for a second consecutive quarter signals a recession.
The Bureau of Economic Analysis (BEA) released the Personal Consumption Expenditures Price Index (PCE) on Friday. The PCE rose 6.8% in June, the largest 12-month increase since January 1982. The index rose 1% from May, representing its largest monthly gain since 1981. The PCE is an inflation gauge that the Fed monitors closely in determining monetary policy.

Numerous corporations also reported 2nd Quarter results last week. Generally, the results were digested by the market as favorable. Thus far in 2022, many corporations have managed their way through the two-quarters of negative economic growth, albeit to different levels of success. To this end, according to FactSet, as of July 22, for Q2 2022, with 21% of S&P 500 companies reporting actual results, 68% of S&P 500 companies have reported a positive EPS surprise, and 65% of S&P 500 companies have reported a positive revenue surprise. We will continue to monitor and report on corporate earnings in next week’s update.

Investors should consider all of 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 of this information to build and manage the asset allocations within their portfolios consistent with their objectives, timeframe, and tolerance for risk.

Best wishes for the week ahead!

Consumer Confidence Index data is sourced from The Conference Board. Housing Data was obtained from the National Association of Realtors. Personal consumption expenditures price index (PCE) and personal consumption expenditures are sourced from the Bureau of Economic Analysis. Equity Market and Fixed Income returns are from JP Morgan as of 7/29/22. Rates and Economic Calendar Data from Bloomberg as of 7/29/22. 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.