The Asset Guidance Group Weekly Update For the week ending September 16, 2022

3 Things… 

  1. Equity Trends: the S&P500 is trading below its 50-Day MA, trend is DOWN and 9.69% below its 200-day MA; the NASDAQ is about 13.27% below its 200-day MA, DOWN trend firmly in place; Dow is 8.30% below its 200-day MA; 27.28% of the S&P 500 and 22.08% of the NASDAQ, respectively, are above their 50-Days; Bulls26:Bears46; VIX 27.79; [1]
  2. Bonds: The Yield on the 2-year Treasury bond climbed above 3.9%, a level it had not seen since Nov. 1, 2007. As of 8:30 a.m. ET, it was up 3 basis points to 3.903%. The 2-year Treasury is highly sensitive to policy decisions as it is widely recognized as in indicator of how investors think central bank policy will develop in the near future. The yield on the 10-year Treasury was little changed at 3.455%. The yield on the 30-year Treasury ticked up 1 basis point to 3.489%. The weekly 2-year Treasury note/10-year Treasury note Spread widened to 1.12. Yields move inversely to prices and 1 basis point is equal to 0.01%. [2]
  3. Sectors: Best 3-month sectors: Consumer Discretionary (+16.56%); Utilities (+15.21%); Financials (+7.18%); Crypto/Bitcoin -0.45%; [3]

This Week’s Quotable

“Week over week over week, [global shipment volumes] came down. We’re seeing that volume decline in every segment around the world, and so you know, we’ve just started our second quarter. The weekly numbers are not looking so good, so we just assume at this point that the economic conditions are not really good. We are a reflection of everybody else’s business, especially the high-value economy in the world.” – FedEx CEO Raj Subramaniam Thursday September 15, 2022 to Jim Cramer on CNBC’s “Mad Money.” [5]

Recent Highlights

  • Business Inventories increased 0.6% (09/15)
  • Capacity Utilization decreased 0.2 percentage points (09/15)
  • Industrial Production decreased 0.2% (09/15)
  • Initial Claims decreased to 213,000 (09/15)

In the Markets

Wall Street closed sharply lower on Thursday, pulled down by tech and energy stocks. Markets remained apprehensive about policy tightening by the Fed while ignoring positive economic data released on the day. The World Bank’s outlook of a global recession in 2023 also clouded investor mood. All three major stock indexes ended in the red.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 0.6% or 173.27 points to close at 30,961.82. Twenty-four components of the 30-stock index ended in negative territory, while six ended in positive.

The tech-heavy Nasdaq Composite lost 167.32 points or 1.4% to 11,552.36.

The S&P 500 dropped 1.1%, or 44.66 points, to end at 3,901.35. Nine of the 11 broad sectors of the benchmark index closed in the red. The Energy Select Sector SPDR (XLE), the Utilities Select Sector SPDR (XLU) and the Technology Select Sector SPDR (XLK) fell 2.6%, 2.5% and 2.3%, respectively, while the Healthcare Select Sector SPDR (XLV) advanced 0.6%.

The fear-gauge CBOE Volatility Index (VIX) increased 0.4% to 26.27. A total of 11.1 billion shares were traded on Thursday, higher than the last 20-session average of 10.4 billion. Decliners outnumbered advancers on the NYSE by a 2.79-to-1 ratio. On the Nasdaq, a 1.35-to-1 ratio favored the declining issues.

Tech and Energy Sectors Pull Down Market

Oil prices slid over 3% to a one-week low on Thursday as a tentative agreement was reached between the government and unionists to avert a U.S. rail strike. Also, the fear of weaker global demand and continued U.S. dollar strength ahead of a potentially large interest rate increase in the September Fed FOMC meeting had a bearing on the energy sector. Brent crude fell $3.26, or 3.5%, to close at $90.84/barrel, while WTI crude ended $3.38, or 3.8%, lower at $85.10/barrel. These are the lowest closes for both benchmarks in the last week.

Tech shares fell through the day as bond yields rose, rendering their future valuation look less profitable. Moreover, with interest rates slated to continue rising, the apprehensions of a market slump is having an adverse impact on growth stocks like large-cap tech.

Consequently, shares of Valero Energy Corporation (VLO), Salesforce, Inc. (CRM) and Amazon.com, Inc. (AMZN) lost 4%, 3.4% and 1.8%, respectively.

World Bank Predicts Global Recession In 2023

Even as investors try to price in an expected 75 bps interest rate hike from the Fed in its meeting next week, comments from World Bank president David Malpass and inferences drawn from a recent study by the apex body have borne down on their mood. The decline in the world’s three largest economies, the United States, China and the Eurozone has pushed the global economy into its sharpest fall since 1970, according to the study.

Interest rate hikes and related policy actions taken by central banks around the world were likely to continue well into next year but might not be sufficient to bring inflation back down to the pre-pandemic levels, the bank said. In the absence of supply-side disruptions and labor-market pressures subsiding, global inflation, excluding energy, could stay at about 5% in 2023. According to Malpass, more countries would fall into recession if global growth continues to slow down, and this would have devastating consequences for emerging markets and developing economies.

Economic Data

The Labor Department said on Thursday that initial jobless claims fell to 213,000, decreasing 5,000 for the week ending Sep 10. The previous week’s level was revised down by 4,000 from 222,000 to 218,000. The four-week moving average decreased to 224,000, a fall of 8000 from the previous week’s revised average of 232,000.

Continuing claims came in at 1,403,000 for the week ending Sep 3, increasing 2,000 from the previous week’s revised level. The previous week’s numbers were revised down by 72,000 from 1,473,000 to 1,401,000. The 4-week moving average came in at 1,413,250, a decrease of 7,750 from the previous week’s revised average. The previous week’s average was revised down by 18,000 from 1,439,000 to 1,421,000.

Per the U.S. Census Bureau, advance estimates of U.S. retail and food services sales for August 2022 are $683.3 billion, indicating an increase of 0.3% from July. The estimate is adjusted for seasonal variation and holiday and trading-day differences, but not for price changes. The July numbers were revised to a 0.4% decline.

Also, business inventories for July, adjusted for seasonal and trading day differences but not for price changes, were estimated at $2,434.3 billion, up 0.6% from the unrevised June numbers.

According to a report published by the Fed, industrial production went down 0.2% in August from July. The July numbers were revised down to an increase of 0.5% from 0.6%. Capacity utilization declined 0.2 percentage points in August to 80%, after the earlier reported July numbers were revised to 80.2%. [6]

Sources: [1][3][4] Stockcharts.com; [2] CNBC.com; stockcharts.com; [5] FedEx CEO says he expects the economy to enter a ‘worldwide recession’ (cnbc.com); [6] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday September 16, 2022; 

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