Earnings, Fed Spark Rally
The stock market narrative shifted last week from Fed interest rate hikes (a persistent drag on investor sentiment) to corporate earnings, which boosted investor enthusiasm with better-than-expected results. Stocks surged in the first two days of trading on the strength of positive earnings surprises, aided by a modest pullback in bond yields and news that the U.K. was scrapping its tax cut plans.
Mid-week, stocks surrendered some gains on a stronger U.S. dollar and rising bond yields. But on Friday, comments by a Fed official that hinted at a possible relaxation in Fed rate hikes sent stocks soaring to close out a good week.
U.S. equities had a strong week, with the tech-heavy NASDAQ leading the way, up 5.22%.
Among style boxes domestically, each turned in positive numbers on the week, with large-cap dominating its smaller-cap brethren.
Developed international markets beat out Emerging Markets; both were modestly up over the week, the MSCI EAFE by 0.55%, leading the MSCI EM, 0.21%.
U.S. bonds were a mixed bag on the week, with the Bloomberg Barclays U.S. Aggregate Bond index down - 1.07%, and the Bloomberg Barclays U.S. Corporate HY index up 0.28%.
Global Bonds were negative on the week.
The streaming giant Netflix announced it had added 2.4 million net new paid subscribers during the third quarter. The number was more than double company forecasts and a pleasant surprise following two consecutive quarters of subscriber losses.2
The Port of Long Beach-Port of Los Angeles complex, the heart of the US supply chain, has been plagued with congestion since the start of the Covid-19 pandemic; that is, until recently. According to the Marine Exchange of Southern California, the queue of ships waiting to unload at the ports of Los Angeles and Long Beach fell from a peak of 109 ships in January to four vessels this week. While bottlenecks continue to hinder easy passage of cargo at other major US seaports and inland freights, the end of the backups in Southern California signal supply chain tangles may be unwinding.3
Expect to pay more to keep trick-or-treaters happy this year. Candy inflation is here, and it is exorbitant; the cost for those confectionary delights has reached frightful highs, up 13% year-over-year in September, according to US inflation data. Household favorites such as Twix, Skittles, and Reese’s are up a whopping 53%, 41%, and 35% versus last year. You’ve ghost to be kidding me!4
1Data Obtained from Bloomberg as 09/23/2022
Conference Board Leading Economic Index: Leading indicators include economic variables that tend to move before changes in the overall economy. These indicators give a sense of the future state of an economy.
Existing Home Sales: This concept tracks the sales of previously owned homes during the reference period. Total existing home sales include single-family homes, townhomes, condominiums, and co-ops. All sales are based on closings from Multiple Listing Services. Foreclosed homes are only counted in the inventory if the bank is working with a realtor. Foreclosed homes that sell via auction (or other closings outside of the Multiple Listing Services) are not included.
Housing Starts: Housing (or building) starts track the number of new housing units (or buildings) that have been started during the reference period.
NAHB Housing Index - The NAHB/Wells Fargo Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market.
PCE (headline and core) - PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.
GDP : Gross domestic product (GDP) measures the final market value of all goods and services produced within a country. It is the most frequently used indicator of economic activity. The GDP by expenditure approach measures total final expenditures (at purchasers' prices), including exports less imports. This concept is adjusted for inflation.
S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.
Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.
MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.
MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
Bloomberg Barclays US Agg Bond: The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg Barclays High Yield Corp: The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.
Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
Bloomberg Barclays Municipal Bond Index: The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.
Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.
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10/25 Market View Weekly: By the Numbers
October 25, 2022