Market Update: August 19, 2022

Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.

 

The market continues to show remarkable resilience this week. The S&P 500 is now up 17% from the June lows and has yet to sustain a significant pullback as the index reaches overbought levels.

In the news this week, US home sales dropped for the sixth straight month as the housing market continues to struggle. Meme stock shenanigan continue for Bed, Bath, and Beyond stock. And St Louis Fed president, James Bullard, stated that he’s leaning towards another 75-basis point increase in September for the Fed Funds Rate.

Over the last few weeks, there has been a split of technical vs fundamental signals in the markets with a deluge of positive signals from the stock market indices combined with negative signals from economic indicators. As an example, here’s a positive signal from the equal weight consumer discretionary index relative to the staples index. Since November 2021, this index has been in a downtrend indicating that investors are very risk-off for the high risk, high reward cyclicality of the discretionary stock. Since July, however, this index has broken through the downtrend indicating new appetites for riskier stocks.

A popular indicator making the rounds on social media is the 50% retracement. Earlier this week, the S&P 500 retraced half of the value lost during the bear market. No bear market in the history of the S&P 500 has ever retraced half it’s value and then gone on to make a new low.

However, several economic indicators are currently flashing red. The Leading Economic Index, when growth flips negative, has preceded 2 of the last 3 recessions. Currently, the index is teetering on another recession signal once again.

Likewise, the 10 – 2 treasury spread is still negative indicating that bond investors are very much nervous about a near term recession. This has also been a reliable indicator over the years. So to summarize, there are many positive signs in the markets but there’s still a few significant bearish signal that should concern investors.

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Sources:

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved August 19, 2022, from FactSet Database.

2.FactSet Research Systems. (n.d.). S&P 500 equal weight consumer discretionary relative to equal weight consumer staples (Interactive Charts). Retrieved August 19, 2022, from FactSet Database.

3.FactSet Research Systems. (n.d.). S&P 500 with 50% Fibonacci retracement (Interactive Charts). Retrieved August 19, 2022, from FactSet Database.

4.The Conference Board. US Leading Indicators. “The long-term trajectory of the US LEI continued to decline in July.” Updated August 18, 2022. Retrieved from https://www.conference-board.org/topics/us-leading-indicators.

5.Federal Reserve Bank of St. Louis, 10-Year Treasury constant maturity minus 2-year treasury constant maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/T10Y2Y, August 18, 2022

Disclosures:

Signature Wealth Management Group is registered as an investment adviser with the SEC. Signature Wealth only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

 

Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

 

Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Index of Leading Economic Indicators is a system of analysis that evaluates economic data in order to try to forecast future economic trends.

 

The consumer discretionary sector comprises businesses that sell nonessential products and services that consumers may avoid without any major consequences to their well-being.

 

The Consumer Staples Select Sector Index includes companies from the following industries: food & staples retailing; household products; food products; beverages; tobacco; and personal products.

 

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

The federal funds rate refers to the target interest rate set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.

 

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

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Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. The use of words such as “will”, “may”, “could”, “should”, and “would”, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

 

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The S&P U.S. Style Indices measure the performance of U.S. equities fully or partially categorized as either growth or value stocks, as determined by Style Scores for each security. The Style series is weighted by float-adjusted market capitalization (FMC), and the Pure Style index series is weighted by Style Score subject to the rules described in Index Construction.

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