Weekly Market Insights: October 3, 2022
THE BANK OF ENGLAND PIVOT SENDS SHUTTERS THROUGH A FRAGILE MARKET
Markets kept sliding downward last week, as Hurricane Ian battered Florida and the Nord Stream pipelines sprung leaks. The human and economic impact from the hurricane on Florida will be significant, but we don’t know the full effects. Suffice it to say that it will take a while for the state to recover.
The Nord Stream mess is another negative story that filled the news. (For those who don’t know, the Nord Stream pipeline is used to ferry gas between Europe and Russia. A series of explosions hit the pipeline last week.) The conversation about who is responsible for the explosions has dwarfed the discussion about the potential environmental impact. The upside was that Russia had already shut off gas shipments to Western Europe in response to sanctions, so the immediate effects were negligible. The remaining gas is leaking into the ocean, which is a bad thing, but it’s difficult to understand how the Russians are responsible. All they have to do is turn on or shut off the spigot on their end. Why go to the trouble of blowing up your own pipeline? Hopefully, we will get an answer soon as to how this happened and who is responsible, but the longer-term impact is that if the conflict in Ukraine ends soon, the pipelines will not be available to deliver energy to Western Europe. That will make bringing industries back online that much slower and hamper the recovery in Europe, especially in Germany.
SHINE COMES OFF THE APPLE
The other major development last week: Bank of England (BOE) announced it would suspend its quantitative tightening scheme (rate hiking) to support the falling pound. On the surface, the explanation didn’t make sense. Why signal that you aren’t going to raise rates further when you are already behind the U.S., and the higher rates in the U.S. are driving foreign asset flows in the U.S., which strengthens the dollar at the expense of the pound and other local currencies? Why would you buy a British bond (called a gilt) if you can get a better yield in the U.S.? The BOE official bank rate is currently 2.25%; this is their version of our fed funds rate, which is currently 3%. The U.S. equity markets took the BOE’s actions as a sign that our Federal Reserve would consider a similar move and stop raising rates sooner than current expectations, which isn’t until 2024. As a result, last Wednesday was our best day in the markets since July.
What a difference a day made. On Thursday, it was brought to light that British pension funds had expressed distress that their bond holdings would be severely devalued if the BOE continued to tighten. This information made much more sense. As you can imagine, the same old concerns of a global economic slowdown returned, and markets reversed their gains from the day before. Initial unemployment numbers were the final nail in the coffin, as they once again failed to deliver the higher jobless claims that would show our Fed’s rate increases are having the desired effect of cooling the red-hot jobs market.
All these negatives have been hanging over the market, leaving it in a sour mood. There has been no sign that inflation is declining and no indication the Fed will take its foot off the brakes. The market got a little hopeful on Wednesday, but that quickly evaporated on Thursday. Markets ended a miserable month and quarter on a violent note. Selling accelerated into the final hour of trading on Friday, with the S&P 500 ending the month down over 9%.
COMING THIS WEEK
There will be quite a bit of data this week, while a slew of Fed officials will give their take on the most recent Fed meeting. Fed leaders Bostic, Bullard, Mester, Daly, Evans, Brainard and Williams will all make comments, and any or all could have market-moving consequences.
On Tuesday, we will get consumer confidence, housing starts, Case-Shiller home price index and durable goods numbers. We already know the housing market is in decline, so the housing starts and Case-Shiller home price index likely will be down. Durable goods (the things we buy after a home purchase, like refrigerators, washers, etc.) may also be down. What will be of more interest is if consumer confidence tanks.
We will get a status on retail and wholesale inventories plus pending home sales on Wednesday. These numbers will either reinforce the prior day’s data or contradict it.
On Thursday, we will get the final reading of second-quarter Gross Domestic Product (GDP) and a forecast of corporate earnings.
Finally, on Friday we’ll get consumer spending and consumer sentiment numbers. Also, throughout the week there will be bond auctions, which can get messy in the current environment.
If you have any questions or you’d like to talk to our team about your financial strategy, feel free to reach out anytime. Our team is ready to help.
All the best,
Sears Wealth Management & Insurance Solutions
Sears Wealth Management & Insurance Solutions is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Sears Wealth Management & Insurance Solutions are not affiliated companies. Michael Sears CA License #0757582, Seth Morris CA License #4060606, Chase Morris UT License #907842
AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IAR) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM.
Information regarding the RIA offering the investment advisory services can be found on https://brokercheck.finra.org/.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The information and opinions contained herein, provided by third parties, have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management.
This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security or insurance product.
10/22 – 2454690-1
