July 22, 2022
Market Monitor: July 22, 2022, Update
Headlines and Highlights
- Markets starting second half on the upswing: Global markets are mostly higher this month in a welcome break from the pullback that has dominated 2022. The S&P 500 added back 5.7% in the first three weeks of July, putting it on course for its best month this year. The small-cap benchmark gained 7.6% as investors showed a higher appetite for risk. The strong dollar has limited international developed (2.0%) and emerging-markets stocks (-0.5%). Reduced economic growth expectations pushed the 10-year yield lower, sending bond prices higher.
- Housing market cools: The once-sizzling housing market has cooled as fast-rising borrowing rates and stubbornly high prices soften demand. Housing starts and the number of building permits issued both fell in June as residential construction slowed for a second straight month. Mortgage demand sank last week to a 22-year low. The reduced activity is a direct result of the Federal Reserve’s campaign to rein in inflation by sharply raising interest rates.
- The U.S. dollar is booming: Americans traveling to Europe this summer can find bargains galore with the dollar reaching equal strength with the euro for the first time in 20 years. An ascending dollar, up 18% against other major currencies since the beginning of 2021, is generally not good for markets or U.S. businesses operating abroad. But it could help the Fed’s inflation fight by making commodities – mostly priced in dollars – more expensive and damping down demand.
Chart of Interest
Evened up: The euro has fallen amid Europe’s greater economic strain while the dollar benefits from higher U.S. rates and safe-haven buying, leaving the two at equal value.
Sources: Yahoo Finance, Altair Advisers
Key Takeaways
- Central banks are intensifying their battle against elevated global inflation. The European Central Bank increased its key interest rate by half a percentage point, ending eight years of negative interest rates, to address 9% inflation in the eurozone. Federal Reserve officials signaled that they are likely to raise the fed funds rate by 0.75 percentage point next week for the second straight meeting.
- Second-quarter earnings season got off to a solid start with early results not suggesting a significant economic downturn on the way. Close to three-quarters of the first 88 S&P 500 companies to report beat profit estimates, keeping companies on track to meet expectations of roughly 5% earnings growth year over year.
- The Leading Economic Index, a weighted average of 10 U.S. economic indicators, fell slightly (0.8%) for a fourth straight month in June in a reflection of consumer pessimism about the future outlook. Manufacturers’ new orders for both consumer and capital goods continued to be strong points.
- Part of the bond market’s yield curve remains inverted since June, with the 10-year Treasury note yield lingering below that of the two-year yield. Such inversions, which demonstrate investors’ faltering confidence in the longer-term outlook, historically can signal a recession. However, another part of the curve that many economists and the Fed consider to be a better predictive measure – the difference between 10-year and three-month Treasury rates – has not inverted. Inversions are typically not a reliable market timing indicator; a recession may or may not follow and if it does it can come a year or more later.
- The labor market continues to slowly loosen in 2022 while remaining a strong point for the economy. Initial jobless claims, a proxy for layoffs, rose 2% last week from the previous week to their highest level since November as a few more companies announced job cuts. However, there are still two jobs for every unemployed person seeking employment.
The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice