Weekly Market Update

Stocks closed lower for the second consecutive week as investors continue to digest a sudden surge in interest rates and the potential implications on market valuations. Multiple members of the Federal Reserve have publicly made comments this month about the potential for as many as four hikes in 2022 and this notable shift in Fed rhetoric is reverberating throughout both bond and stock markets as investors adjust to the reality of tightening monetary policy. Furthermore, while this week’s consumer and producer price indices largely came in as expected and were certainly better than feared, they still confirmed that inflation is around its highest levels in 40 years. As a result, interest rates have surged and the magnitude of the move (i.e., the 10-year US Treasury going from about 1.51% to ~1.79% in only two weeks), has caused traders to ratchet back on market risk.

Heading into next week, the S&P 500 is about 2.8% below all-time highs and should the recent surge in interest rates moderate, we expect the fourth quarter earnings season that unofficially started Friday morning with reports from JPMorgan, Citibank, and Wells Fargo to command much more attention from investors. Currently S&P 500 earnings are expected to increase over 21% year-over-year, which would mark the fourth straight quarter of earnings growth above 20%. Corporate commentary around supply chain constraints will be particularly important as investors look to gauge the trajectory of inflation and how it might influence the pace of Federal Reserve rate hikes. In the meantime, we are closely monitoring growth stocks that have struggled so far in 2022, as they have generally led the recent market decline and signs of them potentially bottoming could be constructive for the broader markets.

Ian G. Browning, CFA | Director, Investment Strategies & Shareholder
Peter E. Simmons, JD | President & CEO