Last Week in Review – August 19, 2022

August 22, 2022

Last Week In Review

Last week stocks gave back a portion of the month’s substantial gains after a prominent “hawkish” Federal Reserve policymaker appeared to dampen hopes that inflationary pressures had peaked. The growth-oriented technology and communication services sectors underperformed within the S&P 500 Index, with the latter dragged down by a sharp decline in Facebook parent Meta Platforms. Subdued summer trading was accompanied by some volatility Friday as USD 2.3 trillion in options expired.

In an interview with The Wall Street Journal on Thursday, St. Louis Fed President James Bullard questioned whether inflation had peaked despite the downturn in the year-over-year increase in the consumer price index (from 9.1% in June to 8.5% in July). “The idea that inflation has peaked is…not statistically really in the data at this point,” Bullard told the Journal while stating that he was likely to vote in favor of another 75-basis-point (0.75 percentage point) increase in the federal funds target rate at the Fed’s next policy meeting.
Bullard’s comments came on the same day as the release of the Fed’s minutes from its July policy meeting, which contained few surprises. Stocks did rally a bit following the release, however, which may have reflected policymakers’ acknowledgment of the risk of moving too aggressively at the meeting. Fed officials discussed the recent slowdown in many areas of the economy—with the notable exception of the labor market. While concurring on the need to continue raising rates, “several participants posited that some of the effects of policy actions and communications were “showing up more rapidly than had historically been [due to] a significant tightening of financial conditions.”

US – Markets & Economy

Some upward surprises in the week’s economic data may have fueled rate fears, even as they offered hope that the economy would avoid a recession. Retail sales proved more resilient than expected in July, rising 0.7% once the volatile gas and auto segments were excluded. Notably, sales rose solidly on an inflation-adjusted basis given the smaller 0.3% increase in core (less food and energy) inflation. Industrial production was also strong, rising 0.6% in the month, roughly twice consensus expectations. Weekly jobless claims ticked lower, betraying expectations for an increase. On the downside, housing data remained weak, and Target reported a sharp decline in earnings as shoppers continued to pull back on discretionary purchases.

US – Equity Market Performance

Index Friday’s Close Week Ending 8/19/2022 Weekly (+/-) Point Change 8/19/2022 % Change YTD Week Ending 8/19/2022
DJIA 33,706.74  -54.31 -7.24%
S&P 500 4,228.48  -51.67 -11.28%
Nasdaq Composite 12,705.22 -341.97  -18.79%
S&P Midcap 400 2,578.04  -36.97 -9.29%
Russell 2000  1,957.34  -59.27 -12.83%


US Yields & Bonds

Along with a generally dovish interpretation of the Fed’s July meeting minutes last week, the solid economic data appeared to fuel an increase in longer-term bond yields, with the yield on the benchmark 10-year note nearing 3.0% for the first time since July 21. (Bond prices and yields move in opposite directions.) The broad tax-exempt municipal bond market underperformed U.S. Treasuries by a wide margin. Selling pressures drove the benchmark yield on AAA-rated one-year municipals to its highest level since March 2020, when yields spiked at the onset of the pandemic. Traders cited an increase in new issuance and industrywide outflows as headwinds, although they observed strong demand for a roughly USD 1.25 billion bond offering for the University of California system.

Trading volumes within the investment-grade corporate bond secondary market were below daily averages, and primary issuance exceeded expectations. Segments with more credit risk, including the banking and the technology, media, and telecom sectors, underperformed, while short-maturity and higher-quality credits performed relatively well.

The below investment-grade market experienced low volumes throughout most of the week. However, high yield bond prices endured their most significant setback since June 29 as a hot UK inflation reading (see below). The resilient U.S. retail sales figures reignited Fed policy concerns. Several new deals were generally met with strong demand, however. The primary calendar is expected to be fairly quiet for the rest of the month, with issuance picking up after Labor Day. Liquidity was relatively thin in the bank loan market amid the summer lull.

US Treasury Markets – Current Rate and Bi-Monthly Change

3 Mth +0.13 bps to 2.65%
2-yr: -0.01 bps to 3.23%
5-yr: +0.13 bps to 3.09%
10-yr: +0.14 bps to 2.97%
30-yr: +0.10 bps to 3.21%


Interesting News Overseas

Shares in Europe pulled back amid renewed fears that central banks would need to tighten their policies aggressively to stamp out persistently high inflation. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.80% lower. Most of the major stock indexes fell. Germany’s DAX Index declined 1.82%, France’s CAC 40 Index slipped 0.89%, and Italy’s FTSE MIB Index lost 1.90%. However, the UK’s FTSE 100 Index added 0.66% as the UK pound depreciated against the U.S. dollar. A weaker pound supports the index because many companies are multinationals with overseas revenues.

Core eurozone government bond yields, rose following a double-digit increase in UK consumer prices and European Central Bank (ECB) official Isabel Schnabel’s comment that inflation could tick higher in the near term. Peripheral eurozone and UK government bond yields broadly tracked core markets.

The UK’s headline inflation rate hit 10.1% in July—the first double-digit reading since February 1982—fueled by sharply higher food costs. The year-over-year increase in consumer prices exceeded a consensus forecast of 9.8% in a FactSet survey of economists. The core rate, which excludes food and energy prices, also came in higher than expected, rising to 6.2%.

Meanwhile, underlying wage growth in the UK (excluding bonuses) rose to an annual rate of 4.7% in the second quarter. However, factoring in inflation, regular wages declined 3.0%—the fastest drop since comparable records began in 2001. Unemployment rose 0.1 percentage point to 3.8% in the same period. But job vacancies at 1.27 million in the three months to July, a slight decrease from record levels, suggest that the labor market remained tight.

ECB Executive Board member Isabel Schnabel said that the eurozone’s inflation outlook had not improved since July’s hefty interest rate hike, indicating that she might vote for another significant increase next month. “In July, we decided to raise rates by 50 basis points because we were concerned about the inflation outlook,” she told Reuters in an interview. “The concerns we had in July have not been alleviated… I do not think this outlook has changed fundamentally.”

Lastly, Japanese shares were solidly higher through the first half of last week as investors reacted to upbeat U.S. economic data released late last week. This raised hopes that the Federal Reserve may be less aggressive with rate hikes in the coming months. Indeed, despite a mixed bag of domestic economic releases and weak data out of China stoking concerns about slowing global growth, Japanese equity markets rallied on Wednesday, with both the Nikkei 225 Index and the TOPIX breaching the psychological 29,000- and 2,000-point levels, respectively.

The hopeful sentiment proved to be short-lived, however, after the minutes from the U.S. Fed’s July meeting, released on Thursday, pointed to rates staying higher for longer. The minutes also reaffirmed the central bank’s plans to raise interest rates to return inflation to its 2% long-term objective. This saw Japanese stock markets close Thursday’s session notably lower, giving up the gains made in the previous session. Weakness was felt across most sectors, particularly technology stocks, which tracked U.S. peers in the tech-heavy Nasdaq Composite Index. Federal Reserve officials continued to discuss the need for further interest rate hikes on Friday, ensuring that Japanese equities finished the session without impetus. Over the week, however, both the Nikkei 225 and the TOPIX finished modestly higher, gaining 1.3% and 1.1%, respectively.

This Week Ahead

The upcoming week will bring an amount of news for markets to digest, the biggest of which will be Fed Chair Jerome Powell’s speech at the Fed’s annual economic symposium at Jackson Hole, Wyoming. Powell is expected to shed more light on the Federal Reserve’s rate path, reaffirming that a dovish pivot is unlikely until inflation returns to its 2% target. On the data front, the spotlight will be on personal income, spending, and consumption expenditures inflation, as well as flash PMI releases for August. Also, investors will closely watch the second estimate of Q2 GDP, durable goods orders, and pending and new home sales. Mexico’s Q2 GDP final reading will be closely watched elsewhere in America.

Have a great week!

Stephen Colavito

Stephen Colavito, Jr.
Chief Investment Officer
Perigon Wealth Management, LLC

D,M: 404.313.1382

This message is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell securities or other financial instruments. Past performance is not a guarantee of future results. Perigon Wealth Management is a registered investment adviser. More information about the firm can be found in its Form ADV Part 2, which is available upon request by calling 415-430-4140 or sending an email request to

Written by Perigon Wealth

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