News

A week that started off relatively benign turned south in a hurry as a confluence of events tested risk markets globally. Equity markets sold off globally with European stocks getting hit particularly hard. The S&P 500, DJIA, NASDAQ, and Russell 2000 all broke below their 50 day moving averages this week. Bond yields and credit spreads moved higher on inflation concerns and risk aversion respectively.

It was a busy week including an FOMC meeting, a large amount of economic data (31 releases) and heavy corporate earnings reports (800 companies). Economic data was mixed overall but likely contributed to market volatility. Upside surprises included Q2 GDP (+4.0%), ISM Manufacturing activity (57.1), and improving consumer confidence. Offsetting misses included a very disappointing Chicago PMI (biggest miss since 2005), poor housing market readings, lower payrolls/an uptick in unemployment, and some inflation readings indicating potential price pressures in the system.

An elevated PCE (Personal Consumption Expenditures) in the Q2 GDP report and Thursday’s Employment Cost Index have many market participants thinking the Fed must take notice. Additionally, the confluence of continued violence in the Middle East, material slowdown concerns in Europe, a crippled large Portuguese bank situation, defiant Russian foreign policy, and a second Argentinian sovereign debt default in the past 13 years worked to rattle market participants.

We are in the midst of the fourth longest and strongest bull market on record. This is also the fourth longest S&P 500 rally without a 10% correction. All the while, Fed liquidity remains in place (for now), rates hikes haven’t been moved up (yet), growth continues (moderately), and inflation is not a concern (so far).