2022 | October 3

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The Market

Stocks Continue Slide

Although losses weren’t as steep as those in the previous two weeks, the major U.S. stock indexes fell nearly 3%, declining for the sixth time in the past seven weeks. The Dow on Monday joined the S&P 500 and the NASDAQ in bear market territory, as the Dow declined more than 20% from its level of early January. The S&P 500 closed at 3,585.6 for a loss of 2.95 on the week. 

The stock market’s late summer downturn extended into September and the major U.S. indexes fell for the third quarter in a row. The S&P 500 and the Dow both posted monthly declines of around 9% and the NASDAQ dropped more than 10%—all steeper than the prior month’s losses. 

The yield of the 10-year U.S. Treasury bond rose modestly in what was otherwise an unusually volatile week in the bond market. The yield surged as high as 3.99% on Tuesday to the highest level in 14 years. The next day, it tumbled to 3.71% before ending Friday’s trading at around 3.80%. 

A plan by the United Kingdom’s new government to implement tax cuts and spending increases funded by borrowing triggered further weakness for Britain’s currency. It also prompted a swift response from the U.K.’s central bank, which tried to stabilize credit markets by launching a bond-buying program. 

Rising energy costs fueled another spike in European inflation, with the eurozone reporting that its key inflation gauge rose at an annual 10.0% rate in September, up from 9.1% the previous month. Separately, Germany reported an even steeper increase, with inflation climbing to 10.9% from 8.8% the previous month.   

Amid a challenging economic backdrop, analysts have scaled back their forecasts for the third-quarter earnings results that are scheduled to begin coming out in mid-October. As of the end of September, analysts had reduced their consensus earnings forecast for the S&P 500 by 6.6% relative to what they had expected three months earlier, according to FactSet.   

Despite the U.S. Federal Reserve’s efforts to contain inflation, a monthly inflation metric that the Fed uses as its preferred gauge of price trends rose more than expected. Excluding volatile food and energy, consumer prices rose 4.9% in August from a year earlier, up from 4.7% the previous month as measured by the personal consumption expenditures price index.  

A monthly U.S. labor market update due out on Friday will show whether the strong—but moderating—jobs growth recorded in recent months extended into September. In August, the economy generated 315,000 new jobs—down from 526,000 in July—while the unemployment rate rose to 3.7% from 3.5%.  

Source: John Hancock Investment Management

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Around The Globe

It was a tumultuous week. In the United States, Hurricane Ian pummeled Florida and South Carolina. Analysts estimate the destruction in Florida will cost U.S. insurance companies about $63 billion, although the cost of recovery will be much higher. “The total economic damage will be well over $100 billion, including uninsured properties, damage to infrastructure, and other cleanup and recovery costs,” according to a source cited by Max Reyes of Bloomberg.  

In the United Kingdom, fiscal and monetary policies collided last week. Britain’s new government plans to encourage economic growth with a stimulus package to offset energy costs and big unfunded tax cuts. The government’s fiscal stimulus plan could spark at the same time Britain’s central bank is trying to tamp inflation down. Investors showed their disapproval by selling U.K. government bonds, which are known as gilts. As yields surged, gilts rapidly lost value, imperiling the nation’s pension funds. The Bank of England staged an emergency intervention, calming bond markets by promising to continue its bond purchases, reported Brian Swint of Barron’s. 

Inflation continued to be a concern around the globe. In the U.S., the Personal Consumption Expenditures Index was released last week. It showed prices rose 6.2% year-over-year in August. In the 19-member Eurozone, inflation was up 10% in September, largely because energy prices are up more than 40% year-over-year, reported Elliot Smith of CNBC. In Argentina, the central bank lifted its benchmark rate for the ninth time – to 7% – in an effort to tame inflation. 

The war in Ukraine continued to affect food and energy supplies, driving prices higher. The agreement between Russia and Ukraine that allowed some grain exports to Europe, Asia, the Middle East and Africa in July and August appears to be in jeopardy. Russia is reconsidering the agreement, and has threatened to reject it, which could exacerbate food insecurity in some countries and drive food prices higher.