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Weekly Market Commentary

Weekly Market Commentary – 6/17/2022

-Darren Leavitt, CFA

Investors sent global markets lower on recession fears induced by tighter central bank policies. The Federal Reserve announced that they would raise their policy rate by 75 basis points to a target of 1.50% to 1.75%. The Fed lowered its real GDP estimate for 2022 to 1.7% from 2.8%. A median forecast of the terminal rate increased markedly to 3.8%, and Fed Chair J Powell insinuated it could go higher if needed to thwart inflation. A surprise 50 basis point hike by the Swiss National Bank perhaps was the most telling of the current inflation environment. The tightening move by the Swiss was the first in 15 years and one that, in the past, would be scrutinized over the likelihood of strengthening the Franc. The Bank of England raised by 25 basis points and lowered its GDP estimate for 2022. Brazil raised by 50 basis points in a surprise move. Japan did not change its policy rate and said it would continue to manage its yield curve through quantitative easing measures. The Yen was hammered on the announcement.

No asset class other than the US dollar escaped the week’s sell-off. Commodities sold off on the notion that weaker economic growth would bring less demand. OPEC+ lowered its oil demand forecast for 2022 based on global growth concerns. Protectionist rhetoric from the Biden administration that would limit fuel exports did not help matters. Australia announced that it would curb coal exports. The energy sector took the brunt of this week’s sell-off, losing 17.29%. Energy companies were targeted by congress with a letter from President Biden that said current margins were too high. Additionally, congress introduced legislation that could place a windfall profit tax on energy companies.

Cryptocurrencies also had a tough week after Celsius, a lender in Crypto, announced that it would suspend withdrawals and transfers on its platform. The announcement follows the breakdown of stable coin Terra Luna a few weeks ago and casts doubt over the crypto landscape. As I write, Bitcoin has traded off ~25% for the week and trades just above 19k.

Fears of a recession have also started to impact Wall Street’s earnings expectations. For example, despite better-than-expected earnings from many steel producers this week, analysts lowered their ratings and forward estimates based on a slower economic growth outlook. Revisions to estimates will likely continue a be another headwind for investors over the next several quarters.

The S&P 500 lost 5.8%, the Dow shed 4.8%, the NASDAQ fell 4.8%, and the Russell 2000 plunged 7.6%. The US Treasury market was also extremely volatile over the week. The 2-year note yield increased by fourteen basis points to close at 3.18% but traded at a high of 3.43%. The 10-year yield rose by eight basis points to 3.24% after trading at 3.50% earlier in the week. Oil prices fell 10.1% on a dampened demand outlook. WTI closed at $108.46 a barrel. Gold prices traded 1.8% lower to $1840.50 an Oz.  Copper prices fell 6.4% to $4.02 an lb.

Investment advisory services offered through Foundations Investment Advisors, LLC (“FIA”), an SEC registered investment adviser. FIA’s Darren Leavitt authors this commentary which may include information and statistical data obtained from and/or prepared by third party sources that FIA deems reliable but in no way does FIA guarantee the accuracy or completeness.  All such third party information and statistical data contained herein is subject to change without notice.  Nothing herein constitutes legal, tax or investment advice or any recommendation that any security, portfolio of securities, or investment strategy is suitable for any specific person.  Personal investment advice can only be rendered after the engagement of FIA for services, execution of required documentation, including receipt of required disclosures.  All investments involvement risk and past performance is no guarantee of future results. For registration information on FIA, please go to https://adviserinfo.sec.gov/ and search by our firm name or by our CRD #175083. Advisory services are only offered to clients or prospective clients where FIA and its representatives are properly licensed or exempted.

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