Market Update November 21, 2022

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Economic data for the week included a gain in retail sales, while industrial production fell back slightly, and several housing metrics continued their multi-month declines. Regional manufacturing indexes were mixed, showing sharply divergent results. The Index of Leading Economic Indicators also continued a string of negative readings—signaling higher recession risk.

Global equity markets were mixed, with declines in the U.S., emerging markets and Japan, while greater Europe saw gains. Bonds fared decently with mixed interest rate changes across the yield curve. Commodities fell back in keeping with a sharp drop in the price of crude oil last week.

U.S. stocks were pulled down last week by holiday sales warnings from Target, which led to fears of weakening retail trends for the holiday season, although other retail firms offered mixed to better results. A layoff announcement from Amazon was also taken negatively in that space as a potential pre-recessionary warning. In the overall down week, defensive sectors consumer staples, health care, and utilities led the week with gains of over a percent, while consumer discretionary stocks led the downturn, with a decline of nearly -3% (reflecting the retail concerns). Materials, energy, and financials also fared negatively, as did real estate.

Foreign stocks were mixed, with the U.K. and Europe positive, especially in local currency terms, followed by declines in emerging markets and Japan. U.K. results were buoyed by economic stabilization measures, such as higher taxes and reduced spending (usually negatives for markets, except at times of perceived crisis). Japanese market sentiment soured with a 3.6% inflation reading, which compares favorably to recent U.S. and European readings, but represents a 40-year high and raised worries of central bank action. In emerging markets, a 3% gain in China was offset by larger drops in Brazil and South Korea.

U.S. bonds fared decently, with a further inverting of the yield curve, due to rising yields on the short end and falling yields on the 30-year end. That said, the 2y-10y part of the curve inverted to the widest level in the last four decades. While some prognosticators prefer the 3m-10y and others the 2y-10y, an inverted yield curve in general has been one of the most reliable predictors of recession over the modern era. However, it operates with a lag of anywhere from several quarters to over a year. Investment-grade corporates fared best last week, with gains of nearly a percent, while high yield and bank loans fell back. Foreign bonds were mixed, despite the usual headwind of a stronger U.S. dollar for the week.

Commodities fell back generally last week, pulled down by energy and industrial metals. Natural gas prices rose 7% on reports of a restart of a major U.S. LNG facility in the spring (later than expected). On the other hand, the price of crude oil fell back by nearly -10% to $80/barrel, as rig counts grew, expanding supply. Additionally, European petroleum supplies are also near peak levels, despite fears of potential rationing this winter not that long ago.

Period ending 11/18/20221 Week (%)YTD (%)DJIA0.11-5.41S&P 500-0.61-15.60NASDAQ-1.51-28.23Russell 2000-1.70-16.63MSCI-EAFE0.26-15.51MSCI-EM0.79-21.50Bloomberg U.S. Aggregate0.48-13.69

U.S. Treasury Yields3 Mo.2 Yr.5 Yr.10 Yr.30 Yr.12/31/20210.060.731.261.521.9011/11/20224.284.343.953.824.0311/18/20224.344.513.993.823.92

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.