Stocks pivot before inflation numbers

With strong performances from metals and mining, automobile, and utility stocks, the US stock market is coming off its first up week in a month as it prepares for this week’s key economic data.

With just four trading days to work with—only three of which were positive—the S&P 500 (SPX) put together its best week since July, pivoting off a seven-week low to snap a three-week losing streak:

The headline: Market gets back in plus column with inflation numbers on tap.

The fine print: Will this week’s Consumer Price Index (CPI) and Producer Price Index (PPI) readings show another inflation downtick? And if they do, will it matter to the stock market? Last month’s milder-than-expected readings may have fueled hopes the Fed would hike rates less aggressively, but as recently as last Thursday, Chairman Jerome Powell attempted to moderate such expectations, noting the central bank needed to “keep at it until the job is done."¹ Also, Morgan Stanley Wealth Management points out the focus on Fed policy may be distracting investors from other challenges the market faces, including unrealistically high earnings estimates, geopolitical risks, and headwinds posed by an extremely strong US dollar.²

The scorecard: Small caps and tech rebounded from their losses the previous week to lead the market:

Sector roundup: The strongest S&P 500 sectors last week were materials (+4.9%), consumer discretionary (+4.8%), and financials (+3.6%). The weakest sectors were consumer staples (0.6%), communication services (+1.1%), and information technology (+2.1%).

Stock movers: Iveric Bio (ISEE) +66% to $15.70 and ChannelAdvisor (ECOM) +55% to $22.79 on Tuesday. On the downside, Faze Holdings (FAZE) -21% to $13.73 on Tuesday, Immunocore (IMCR) -22% to $44.75 on Friday.

Futures: October WTI crude oil (CLV2) broke below support last Wednesday, traded as low as $81.20/barrel on Thursday, then rebounded on Friday to close at $86.79. December gold (GCZ2) consolidated near its lowest levels of the year, ending last week modestly higher at $ 1,728.60/ounce. Week’s biggest up moves: September micro ether (METU2) +9.9%, December wheat (ZWZ2) +9.5%. Week’s biggest down moves: October natural gas (NGV2) -13.3%, September VIX (VXU2) -6.7%.

This week brings a new round of inflation data, along with retail sales:

●Today: New York Fed 3-year inflation expectations
●Tuesday: NFIB Small Business Optimism Index, Consumer Price Index (CPI)
●Wednesday: Producer Price Index (PPI)
●Thursday: Retail Sales, Import and Export Prices, Empire State Manufacturing Index, Industrial Production and Capacity Utilization
●Friday: Consumer Sentiment

This week’s earnings include:

●Today: Oracle (ORCL)
●Tuesday: Core & Main (CNM)
●Wednesday: Tsakos Energy Navigation (TNP)
●Thursday: Adobe (ADBE)
●Friday: Manchester United (MANU)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

Given the SPX was still down around 15% for the year at the end of last week, it may be surprising to hear that 2022’s average up week (+2.8%) was larger than its average down week (-2.46%), and its biggest up week (+6.6%) was larger than the biggest down week (-5.8%).

The key difference, of course, has been the frequency of down weeks, but even this aspect of the market’s performance may clash with a vague feeling that a handful of up weeks have been mostly lost in a flood of down weeks. In reality, there have been only eight more down weeks (22) than up weeks (14) so far this year.

Finally, September thumbed its nose at historical tendencies by gaining ground in the shortened week after Labor Day, although last Tuesday was typically weak. Since 1957, the SPX has, on average, closed higher in two of the four weeks in September, has closed higher in three weeks 18 of 65 times, and closed higher in all four weeks only once, in 1958.³

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¹ Reuters. Fed's Powell hopeful inflation can be tamed without pain of Volcker era. 9/8/22.
² MorganStanley.com. There’s More to This Market Than the Fed’s Next Move. 9/7/22.
³ Figures reflect S&P 500 (SPX) weekly closing prices, 1956–2021. “Weeks in September” refers to any week for which Friday is in September—it may include weeks that start in August, but not weeks that end in October. Supporting document available upon request. 8/31/22.

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