Weekly Market Update with Brian Ransom 5 August 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.

It’s been a relatively quiet week for the market this week. As it stands, the market fell 24% peak to trough through the June bottom and has since rallied 13%. The market is now 35 days into this 13% rally.

In the news this week, The US added 528,000 new jobs in July which brings the unemployment rate down to 3.5%. Home sellers have begun to cut prices on their listings as buyers for high mortgage housing dries up. And stocks continue to rally with falling bond yields through the month of July.  

The pertinent question at the moment is “is this another V-Bottom?” like we saw in 2018 and 2020? Or is this indicative of a “bear market rally” like we saw in 2008, just before the market bottom fell out? Likewise, the market could also behave like the time period between 2015 and 2016 where stocks just kind of move sideways with fairly significant bouts of volatility. The answer is of course very complicated. Price actions from here on out primarily depend on two things: 1. What is the Federal Reserve going to do? A hawkish Fed that continues to increase rates at a rapid rate increases the chances of a bear market reversal and possible recession. And number 2. Is there an exogenous event like the Lehman Brothers Collapse in 2008 that exacerbates the volatility? We just haven’t seen any signs yet of such an event.

Regarding the actions taken by the Fed, we’ve seen a few positive signs that could, conceivably, possibly, maybe encourage the Fed to become more Dovish. 10-year bond yields have been falling which is indicative of an economic slowdown and a disinflationary environment.

Commodity prices have been falling like copper shown in blue and WTI crude oil shown in red.

But we haven’t seen that translate into actual, tangible decreases in inflation yet. Total CPI (shown in blue) and, more importantly, Core CPI (shown in red) haven’t yet pulled back to levels that might encourage the Fed the stop increasing interest rates.

So, to summarize, the culminating event that is driving the market is the hope for a dovish Fed. But we won’t see the Fed reverse course until we see disinflation. Disinflation is ultimately caused by an economic slowdown. Signs of an economic slowdown are falling commodity prices and falling bond yields, which we’ve seen, and rising unemployment which remains elusive.

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Sources

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved August 5, 2022, from FactSet Database.

2.FactSet Research Systems. (n.d.). WTI Crude Spot and Copper NYMEX (Interactive Charts). Retrieved August 5, 2022, from FactSet Database.

3.FactSet Research Systems. (n.d.). Core and Total CPI Y/Y% (Interactive Charts). Retrieved August 5, 2022, from FactSet Database.

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