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Stocks Rally as Fading Consumer Confidence May Slow Rate Hikes

Weekly Update – October 28, 2022

  • The S&P 500 index closed higher for a second consecutive week as signs that the Federal Reserve might be nearing the end of its rate-hike cycle overshadowed disappointing quarterly results from tech sector heavyweights.
  • Deteriorating consumer confidence coupled with a 26-month low in a leading manufacturing index fueled speculation that the Fed could pause or slow further rate hikes to avoid steering the economy into a hard landing.
  • The benchmark index closed the latest week 3.95% higher at 3,901.06 from last week’s close of 3,752.75 with all but the communication sector ending in the green.
  • Wall Street braced for the deluge of third-quarter results as the five biggest names in the technology sector — representing a combined market cap of nearly $7 trillion — all reported last week.
  • Though Microsoft (MSFT) and Apple (AAPL) beat expectations, investors were not as impressed with Amazon’s (AMZN) downbeat sales forecast. The stock fell to its lowest level since April 2020, nearly torpedoing the entire sector. With the help of bullish results from Enphase Energy (ENPH) and ServiceNow (NOW), the tech sector ended the week 4.28% higher.
  • Largely as a result of Meta’s (META) 25% nosedive on Thursday and Alphabet’s (GOOG) lingering ad woes that wiped nearly 9% off of the stock’s value last week, the communications sector limped into the close with a loss of 2.85%, making it the worst-performing sector of the S&P 500.
  • Taking the lead was the industrial sector with a 6.73% gain from the prior week’s close. Caterpillar (CAT) gained more than 15% to take the top spot among industrials on the heels of record Q3 earnings and better-than-expected revenue.
  • The consumer staple sector was higher by 6.09%, led by gains in Kraft Heinz (KHC) and Kimberly Clark (KMB).
  • Financial stocks were up a combined 6.2% though gains in brokerage stocks were tempered by heavy losses in shares of Assurant (AIZ) which fell 8.35% last week after cutting EBITDA forecasts. The move triggered Truist to slash its price target on Assurant by more than 20%.
  • Utilities were up 6.5% followed by a 5% gain in the healthcare sector and a 3.3% gain in material stocks. Buoyed by gains in Halliburton (HAL) and Exxon Mobil (XOM), the energy sector closed the week 2.8% higher.
  • While earnings were in focus last week, economic data tempered fears that the Federal Reserve would continue to aggressively raise interest rates to cool the economy. The S&P Global manufacturing PMI slid into contractionary territory, while the corresponding index on the services sector fell to 46.6 from 49.3 the month prior. Housing data painted a bleak picture of the housing market with new home sales down nearly 11% in September, pending home sales down 4%, and home prices dropping another 0.8%.
  • Next week’s focus shifts to the labor market with the release of the ADP private payrolls report, JOLTs, and the all-important Labor Market non-farm payroll report on Friday. The economy is expected to have created 190,000 new jobs in October with the jobless rate inching up to 3.6% from 3.5% in September.
  • Additionally, the Federal Open Market Committee likely will raise interest rates again next Wednesday with odds favoring a 75-basis-point increase to the Fed funds target rate.
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