Financial markets remain volatile as inflation data continues to point toward further increases in interest rates by global central banks. This week, companies continued to report third quarter results with several firms reporting positive earnings surprises. However, on a year-over-year basis, companies in the S&P 500 are reporting their lowest earnings growth since the third quarter of 2020. The effects of higher inflation are apparent in overall corporate profits thus far.
Evidence of better-than-expected economic growth emerged in the data this week. Third quarter US Gross Domestic Product (GDP) rose 2.6% on an annualized basis as the economy rebounded, following two quarterly contractions, due in part to resilient consumers and businesses. Personal Consumption, the biggest part of the economy, climbed at a 1.4% pace.
Inflationary trends in the economy remain elevated. The Personal Consumption Expenditures (PCE) price index rose 0.3% month-over-month in September, which was in-line with economists’ forecasts. Year-over-year, the gauge was up 6.2%, unchanged from last month. Core PCE, the Fed’s preferred metric—which excludes food and energy—rose 0.5% month-over-month in September and was up 5.1% year-over-year. The consumer, along with the strong labor market, have remained resilient, although savings rates have been declining and credit card debt is on the rise.
Housing continues to show weaker trends due to rising interest rates and lack of affordability. The 30-year mortgage rate currently stands at 7.10%, up 3.96% year-over-year. Sales of new US homes fell in September, resuming a downtrend as decades-high mortgage rates push prospective buyers out of the market. Purchases of new single-family homes decreased 10.9% to a 603,000 annualized pace following an unexpected gain in August. The S&P CoreLogic Case-Shiller National Home Price index rose 13.1% year-over-year in August, the smallest gain since February 2021, after rising 16.0% in the prior month. Housing markets were mixed as Miami and Tampa, Florida, and Charlotte, North Carolina saw year-over-year increases of 28.6%, 28% and 21.3%, respectively. The West Coast, which includes some of the highest-priced housing markets, saw the largest monthly declines, with San Francisco (-4.3%), Seattle (-3.9%) and San Diego (-2.8%) falling the most.
Meanwhile, financial markets await the outcome of the Federal Reserve’s meeting next week for any indication on the future path of its monetary policy. Equities remain volatile but are poised to finish higher for the week with strong gains this morning. The US Treasury curve steepened this week with the 2-year yield at 4.40%, the 5-year at 4.18%, and the 10-year 4.00%, as of Friday morning. The economic data released this week suggests the Fed is not likely to slow the pace of monetary policy tightening at the upcoming November 2nd Federal Open Market Committee (FOMC) meeting.
Next Week:
MNI Chicago Purchasing Managers Index (PMI), S&P Global US Manufacturing PMI, Dallas Fed Manufacturing. Activity, Institute for Supply Management (ISM) Manufacturing, ADP National Employment Report, Federal Open Market Committee (FOMC) Meeting, Factory Orders, Durable Goods Orders, ISM Services Index, US Bureau of Labor Statistics Employment Situation Report.
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© 2022 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the U.S. Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates. S&P 500– The S&P 500 is a market value weighted index of 500 large-capitalization stocks. The 500 companies included in the index capture approximately 80% of available US market capitalization. The S&P Corelogic Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the nation.