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Powell’s Jackson Hole Comments Spook Markets, Energy Stocks the Lone Positive Sector

Weekly Update – August 26, 2022

  • The S&P 500 closed lower for a second straight week as Federal Reserve chairman Jerome Powell’s blunt remarks at the Jackson Hole Fed symposium spooked financial markets and left all the major US indices with heavy losses. After Powell threw cold water on the possibility for the Fed to moderate restrictive monetary policy to avert a recession, the S&P 500 continued to lose ground and closed below 4,100 for the first time in a month.
  • As a result, the benchmark index closed the week 4% lower at 4,057.66 from last week’s close of 4,228.48 with all but one of the 11 sectors ending the week in the red.
  • The one exception was the energy sector which closed higher for a third consecutive week with a 4.3% gain fueled by comments from members of the Organization of Petroleum Exporting Countries concerning production cuts to stabilize prices. A new oil discovery off the coast of Suriname launched APA Corp (APA) to the top spot with an 11% gain over the prior week’s close.
  • The tech sector limped into the close down by more than 5.6%, as disappointing guidance from Salesforce (CRM) and Nvidia (NVDA) underscored the sector’s vulnerability to macroeconomic headwinds. Both saw their price targets cut by Wall Street analysts after releasing second-quarter results after Wednesday’s close.
  • Financial stocks were weighed down by the combination of higher Treasury yields and broader market pressure, adding another 3.6% to last week’s loss. Citigroup (C), down 5.4% from last week, retreated late in the week after announcing that it would shutter its Russian consumer operations at a cost of $170 million over the next 18 months.
  • The industrial sector closed with a loss of 3.4% as heavy selling pressure on building stocks was offset by gains in defense names like Raytheon (RTX) and Northrop Grumman (NOC).
  • Twitter (TWTR) shares were dragged lower for a second week as whistleblower allegations concerning lax security at the social media site undermined its legal case against Elon Musk. The stock was down another 8% last week and was the worst performing stock within the communication sector (-4.8%).
  • The consumer discretionary and consumer staples sectors were lower by 4.8% and 3.3%, respectively, while utilities were down 2.6% for the week. Real estate stocks were down a collective 4% with the poor performance of the housing market causing REIT stocks to slide by as much as 6%.
  • Gloomy data on manufacturing and the housing market last week showed new home sales plunging 12.6% in July while pending home sales were down another 1% as higher mortgage rates continue to choke off demand. The S&P Global services PMI fell to its lowest level since May 2020 while the Richmond Fed manufacturing index sunk to a 27-month low.
  • But the economic data was eclipsed Friday by Powell’s blunt message to Wall Street that struck a very different tone from his “inflation is transitory” speech from Jackson Hole 2021. Powell’s hawkish tone came with a warning that the Fed would do whatever is necessary to restore price stability, even if efforts to slow the economy lead to a recession. The S&P 500 suffered its biggest one-day decline since late June before bottoming out below 4,100.
  • Next week’s calendar could give the Fed the ammunition it needs for another 75 basis point rate hike at its next FOMC meeting (Sept 20-21) with data on non-farm productivity and unit labor costs, as well as the S&P Global manufacturing and Institute for Supply Management PMIs for August.
  • Data on the labor market next week includes job openings and labor turnover (JOLTS) Tuesday, private payrolls (ADP) on Wednesday, culminating in the pivotal August non-farm payroll report Friday with early estimates at +290,000.
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