The Weekly Wrap: September 12, 2022

Week in Review

US stocks rallied last week, with both the S&P 500 and the Nasdaq Composite jumping more than 3.5%. The Dow Jones Industrial Average climbed only 2.7% but remains the best performer for the year. The rally coincided with a move lower in the US Dollar index, which fell 0.5%. Crude oil closed little changed for the week, while Gold rose after nearly a month of declines. Bitcoin dropped 4% – its fourth straight weekly move lower. Ten-year treasury bonds closed at their lowest level since 2010 after falling 0.8%.

The European Central Bank implemented a 0.75% interest rate hike at last week’s meeting – the establishment’s largest ever – while also lowering its outlook for economic growth over the coming years. ECB President Christine Lagarde forecasted more rate hikes at coming meetings as the bank tries to deal with rising prices. The move pushed European sovereign yields higher and provided support for the Euro, which had previously fallen below parity and to its lowest level versus the US Dollar since 2002.

Market Internals

The stock market rally from the June lows has faltered in recent weeks. Only 45% of all stocks in the S&P 500 are above their 20-day moving average, though more than half of issues are still above their 50 and 100-day averages. The vast majority of stocks – 36% – remain in long-term technical downtrends.

Breadth remains weakest in growth-oriented sectors: only 15% of Communication Services stocks and 22% of Discretionary stocks are above their 200-day. Utilities’ strength has been remarkable and broad across all timeframes, while Energy stocks have held up relatively well. Ninety-three percent of constituents in the former, and 86% of the latter, are still in long-term, technical uptrends.

What’s Ahead

It’s an important week for economic data, as we’ll get our final CPI report before the Federal Reserve’s next FOMC meeting. Consumer prices are expected to have fallen for a second consecutive month in August, while the core reading that strips out food and energy is expected to accelerate. That report comes out on Tuesday morning, along with results from the latest NFIB Small Business Optimism survey. Producer Prices are released on Wednesday, followed by Retail Sales on Thursday, and an update on consumer sentiment from the University of Michigan on Friday. The Treasury will auction 10-year notes on Monday and 30-year bonds on Tuesday, which could cause waves in fixed income markets.

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