Market Recap week ending 7/22/2022
US financial markets rallied over the week despite increasing economic growth concerns. A very weak BofA Fund Manager Survey validated a sense that some, if not most, of the coming economic weakness has been priced into the market. The survey showed high cash levels, low equity exposure, and high expectations for recession. The negative sentiment provided contrarians a reason to step in and buy the market. US economic data was weaker than expected and highlighted by a weakening housing market, increasing initial claims, and a service contraction. Q2 earnings continued to roll in. Tesla and Netflix provided an upside catalyst for growth stocks, while Snap Chat's dismal quarter hammered the social media issues. Travel-related names fell on airline earnings and an equity raise by Carnival Cruise. CSX and Union Pacific helped the industrials move higher on better-than-expected earnings. However, Verizon and AT&T missed their marks.
Lockdown measures in China aimed at curbing Covid infections continued to dampen supply chain sentiment. In Europe, the ECB raised its policy rate for the first time in eleven years by a higher than anticipated 50 basis points. The rate hike came as Italian Prime Minister Mario Draghi failed to form a coalition government and announced his resignation. Interestingly, the ECB will continue its QE program, perhaps to keep peripheral sovereign spreads in check.
The S&P 500 gained 2.5%, the Dow rose 2%, the NASDAQ added 3.3%, and the Russell 2000 tacked on 3.6%. The volatility continued in the rates market as the 2-year note yield fell by fourteen basis points to 2.99%. The 10-year bond yield lost fifteen basis points closing at 2.78%. The curve's inversion also portends economic weakness being priced into the market. Oil prices fell for another week. WTI prices fell by $3.18 or 3.2% to $94.76 a barrel. Of note, the Nord 2 pipeline, which had closed for service, reopened at 40% capacity, which surprised many energy traders. Gold prices climbed $16.50, closing at $1719.30 an Oz. Copper prices increased by 2.7% or $0.09 to $3.32 am Lb. This week, the dollar weakened against the majors as the Euro found some footing off the ECB's rate hike decision.