Equities Bounce, Inflation (slowly) Peaking?
Equity markets bounced last week due to relief from bond yields, and a feeling that inflation is peaking, albeit it slowly. The S&P 500 rose 1.6% by Friday, led by gains in year-to-date lagging sectors, consumer discretionary, technology and telecom services. Energy, utilities, and materials all lagged the overall indexes.
Interest rates ended up higher on the week, with the 10-year yield finishing just below the 3.1% mark. This is still down from near 3.5% around the middle of June and now essentially unchanged from early-May. The march upward in yields has been a major factor pulling equity valuations down with PE’s dropping from 21-22x on the S&P500 to 15-16x currently. Oil and energy prices were down on the week. Falling prices across other commodities such as grains, steel, and copper, as well as shipping rates are signs that maximum price stress might be abating. Those areas largely cover the goods sector while the services side of the economy continues to see higher wages.
Job data rose by 372k in the month, which was above the consensus estimates. The jobless rate held steady at 3.6%. Wage growth slowed a bit to +0.3% in the month and +4.2% annualized over the past three months. There was weaker data elsewhere, with ISM readings lower, and average hours worked declining. The Federal Reserve looks to raise by another 75-basis point rate hike at their next meeting at the end of July.
Many strategists are referring to the 1st half of 2022 behaving remarkedly like the 1st half of 1970 economically and politically with high inflation and a very weak stock market. The data doesn’t lie. They do look similar year to date. Check out this Wednesday’s news or Noise segment for more information but here is the data”
In the first half of 1970 (also a Midterm election year), with inflation also running hot, the S&P 500 fell -21%. First half 2022 was also down almost exactly -21% with high inflation. In the second half of 1970, the market reversed those losses to gain 26.5% off those lows into yearend closing the year almost spot on flat for the wild ride of 1970.
In total, the market rose +44% from its halftime closing low in 1970 through its first half, 2nd quarter, 1971 top. This top was also up 14.5% higher than where the markets started 1970. If you hear strategists bringing up the comparison to the 1970’s? A purely data driven response would be,” Let’s hope so, that is new all-time highs on the S&P500 in early 2023 and substantial gains by mid-2023!” The history of the markets, and the final punchline is often left off these historically dire comparisons made on TV.
Weekly Stock Podcast: Opportunity knocks Part 2
https://www.youtube.com/watch?v=2Hq0S3asRWw&list=PLxj0FBH5Bt8twiZx9RvxpW9AydohZ5W3-&index=37
News or Noise: Internet Scams and Frauds run Rampant still. Beware and Aware.
https://www.youtube.com/watch?v=7aH5j8b9H2M&list=PLxj0FBH5Bt8vxmPI12L9xWcpoVMX7jqvZ&index=29
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