Summer of ‘Too Hot and No Fun’
Equities slumped last week. It’s the same story repeated with higher inflation reports persisting led by services, housing, and energy. Goods inflation looks to have peaked and is rolling over. Piling on investor sentiment was the University of Michigan’s survey that showed consumer sentiment plunging to record lows, hurting consumer discretionary stocks the most. The S&P 500 dropped -5.1% last week with all the losses coming the last 1.5 days of the week. Year to date that’s a decline of -18.2% in the S&P 500 and now almost -30% in the Nasdaq. This is coincident with the rapid jump in first half inflationary rising-rate environment. Bond yields were sharply higher along the curve, with 2-year yields up 33 bps on the week, and 10-year yields that mortgages are priced off up 29 bps.
Treasury market prices sank = higher yields and interest rates, in front of and after the Friday CPI report, with the 2-year yield up 22 bps on Friday alone (233 bps for the year) to top 3% for the first time since 2008. It’s up another 15 bps to 3.20% overnight. The 10-year yield is up another 8 bps overnight to 3.23%. The bond futures market upped the odds of a 75 bp hike to over 20% after the CPI release. The hawkish rhetoric will be cranked up to prevent inflation expectations from running away. A larger hike is now likely on the table for subsequent meetings, even though Powell had previously said 50 bps was the default option for July.
The spot VIX is back above 30, indicating heightened nervousness in equity markets. Importantly, Wharton economist and market historian Jeremy Siegal reminds investors that history shows that over time, dividends move with inflation with a lag, and if reinvested, increase your expected long-term return in equities as short term prices decline. We encourage everyone to read the below piece, available at the following link:
Weekly Stock Podcast: Taper Tantrum 2.0
https://www.youtube.com/watch?v=FY-lrn855S8&list=PLxj0FBH5Bt8twiZx9RvxpW9AydohZ5W3-&index=33
News or Noise: Billionaire Boasts
https://www.youtube.com/watch?v=9-dzB3Wy1js
Oak Harvest YouTube Channel
https://www.youtube.com/channel/UCkLvOm9F5iC01-hHxRmUXpQ
Stock Talk Podcast (Weekly Market News and Opinion from Oak Harvest):
https://oakharvestfg.com/stock-talk-podcast/
The Investor Mindset Podcast (Introduction to Critical Concepts for Investors):
https://oakharvestfg.com/investor-mindset/
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