Market Pulse

In focus

After declining nearly 6% a week earlier, the S&P 500 rallied 6.5%, snapping a three-week slide. This highlights the fact that there are many crosscurrents that investors are currently grappling with and how much uncertainty there is in markets. Here are several of the key factors at play:

• During Federal Reserve (Fed) Chair Powell’s testimony to Congress last week, he reiterated the Fed’s commitment to bringing down inflation to its 2% target while acknowledging that a recession is a possibility from tightening financial conditions. He added that a soft landing is going to be very difficult given ongoing supply chain disruptions and the war in Ukraine’s impact on energy prices.
• 30-year fixed rate mortgages moved above 6% in June which has led to softer housing activity as measured by some metrics. Housing data from the month of May, however, was mixed with existing-home sales declining for the fourth consecutive month, while new home sales increased.
• Investors are set to turn their focus towards earnings season after the Fourth of July holiday weekend. Key areas of focus are going to be profit margins and forward guidance, including any commentary about how the economic environment or inflation are expected to impact financial results.

Until there is more clarity around some of these factors, the market is likely to remain choppy and more volatile.

A look back

• U.S. stocks led the rally last week, finishing up 6.5% and ending a three-week losing streak. International developed markets followed returning 2.8%, while emerging markets ended the week up by 0.8%.
• Yields across the curve declined with the spread between the 10-year and the 2-year U.S. Treasury yields finishing at seven basis points (.07%).
• S&P Global’s U.S. Manufacturing Purchasing Manager’ Index (PMI) came in at 52.4, missing estimates of 56. A level above 50 signifies that manufacturing is still in expansionary territory. 

A look ahead

• Investors will be keenly focused on earnings season after the holiday weekend as the second half of 2022 comes into focus.
• Fed Chair Powell will participate in a panel discussion with other leading central bankers at the European Central Bank’s annual meeting on Wednesday.
• Economic releases: Durable Goods Orders, Pending Home Sales, Consumer Confidence, Gross Domestic Product, Personal Consumption Expenditures, Personal Income, ISM Manufacturing.