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Equities Test 52 Week Market Lows as Central Banks Continue Inflation Fight

Weekly Update – September 23, 2022

  • The S&P 500 index fell 4.6% last week as the Federal Open Market Committee increased its key lending rate by another 75 basis points and signaled more tightening is ahead while a number of central banks elsewhere also boosted rates to try to combat inflation.
  • The S&P 500 ended Friday’s session at 3,693.23, down from last Friday’s closing level of 3,873.33. This follows a 4.8% tumble last week ahead of the FOMC meeting and puts the market benchmark’s slide over the last two weeks at 9.2%. With just one week remaining in the month, this puts the S&P 500’s decline for September to date at 6.6%. The index is now down by nearly 23% for the year to date.
  • At its low of the day on Friday, the S&P 500 traded at 3,647.47, the closest the index has come to its 52-week low of 3,636.87 since that low was set in June. The Dow Jones Industrial Average, meanwhile, hit its lowest level of 2022 on Friday.
  • Last week’s slide came as the FOMC, the US Federal Reserve’s policy-setting committee, delivered its third consecutive 75-basis-point rate increase while also sharply raising its year-end benchmark lending rate outlook. The federal funds rate is now in a range of 3% to 3.25% while the year-end target for the rate is now at 4.4%, up from 3.4% previously.
  • The rate increase by the Fed’s FOMC was followed by similar moves globally by officials at other central banks, including the Bank of England.
  • On Friday, investors’ concerns about the impact on global economic growth escalated as data showed a sharp decline in economic activity in Europe, raising the risk of a recession there.
  • All of the S&P 500’s sectors fell on the week. Energy had the largest percentage drop, down 9%, followed by a 7% slide in consumer discretionary and a 6.4% fall in real estate. The slimmest decline was in consumer staples, which shed 2.1%.
  • The energy sector’s tumble came as futures in natural gas and crude oil also fell. The decliners included APA (APA), which said it has hired professional services firm GHD to conduct independent verification of the oil and gas company’s environmental projects emissions data over the next two years. Shares of APA lost 19%.
  • In consumer discretionary, shares of Ford Motor (F) slid 16% on the week as the automaker issued a warning that its Q3 inflation-related supplier costs are projected to run about $1 billion higher than originally forecast in the quarter. The company also said supply shortages will result in a higher-than-planned number of vehicles awaiting parts at the end of Q3.
  • Real estate’s drop came amid worries about how badly demand in the sector will be hurt by the continued climb in lending rates. Among the decliners, shares of Duke Realty (DRE) fell 4.6% last week while Prologis (PLD) shares shed 4.5%.
  • The narrower drop in consumer staples came as General Mills (GIS) reported fiscal Q1 earnings above analysts’ expectations and lifted its fiscal 2023 guidance, prompting the food products company’s shares to rise 5.2% on the week.
  • “Significant inflation and reduced consumer spending power has led to an increase in at-home eating and other value-seeking behaviors,” General Mills CEO Jeff Harmening said in prepared remarks.
  • Next week, the final week of Q3, the market will receive key data on the housing market, economic growth and inflation. Tuesday will feature releases of August new home sales as well as the S&P Case Shiller US home price index for July, followed by the pending home sales index for August on Wednesday.
  • Thursday, Q2 revised gross domestic product will be released, followed by the Friday release of the Personal Consumption Expenditures or PCE price index, a closely watched inflation reading, for August.
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