- Economic data for the week included a slight downward revision in first quarter GDP, positive durable goods orders, along with weaker new home sales data and consumer sentiment.
- Global equity markets rose broadly last week, with U.S. stocks outperforming foreign. Bonds also fared positively, with interest rates pulling back upon a possible peaking in inflationary pressures. Commodities rose due to gains in crude oil and natural gas.
After 7 consecutive down weeks, U.S. stocks moved sharply higher. In fact, last week’s strong snapback was one of 20 best-performing weeks since 1950. Every sector ended in the positive, led by consumer discretionary stocks up nearly 10% and energy over 8%, while health care lagged with only a 3% gain.
Following a decent Monday recovery, the macro environment had deteriorated further than anticipated. This also affects far larger firms. Growth rates remain high, so it’s possible this coming quarter or future quarters could be a ‘kitchen sink’ type of period, where all the bad news is thrown in under the category ‘economic slowing’, with hopes any stock-specific weakness can be swept under the rug. This is how it often happens. But is Snapchat a true bellwether of the U.S. economy?
Foreign stocks also fared positively last week, but to a lesser degree than in the U.S. The ECB noted it intends to exit its zero-interest rate policy by Sept., which caused the U.S. dollar to fall back. The ‘carry trade’ has been one of the reasons for the dollar’s strength this year, with the Fed acting in a more hawkish way than Europe, Japan, or the U.K., the primary currency pairs. Emerging market gains were largest in commodity-exporting Brazil, South Africa, and Mexico. Sentiment in China remains mixed, with reopenings commencing but internal debate about the zero-Covid policy and potential for a longer slowdown.
Interestingly, the U.K. introduced a 25% windfall tax on the energy industry, under the sentiment that oil and gas firms have profited overly from high commodity prices that have pressured inflation higher. Sentiment toward taxing the energy industry has occurred regularly over the years, particularly in years when high prices have resulted in high profits; on the other hand, lean years in the industry, where oil prices fall so low as to make extraction unprofitable or less profitable, little protection from bankruptcy is provided on the opposite site.
U.S. bonds experienced a positive week again as interest rates fell back from recent peaks, in keeping with general thoughts that economic slowing could dampen the Fed’s hawkishness recently. Treasuries as a whole were less dramatically changed, while corporate bonds fared positively along with a strong week for equities. Foreign bonds fared positively, especially in emerging markets, helped by a weaker U.S. dollar.
Commodities fared well on the week, helped by a weaker dollar, with gains of 5% in energy outweighing mixed results in metals and little change in agriculture. The price of crude oil rose by over 4% to just over $115/barrel, and natural gas rose by 8% (bringing year-to-date gains to well over 100%).
Information is provided by Egan, Berger & Weiner, LLC and written by [author/publishing company], a non-affiliate of Cetera Advisor Networks LLC.
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