Week of September 6, 2022

U.S. stocks fell last Friday after strong labor-market data supported the case for the Federal Reserve to continue its pace of raising interest rates.  The economy’s apparent resilience amidst higher interest rates contrasts with the increasingly bleak outlook in Europe.  The Dow fell 1.1% on Friday, closed down about 3% for the week and finished more than 15% off its 52-week high.  The S&P 500 fell 1.1% on Friday and 3.29% for the week.  It also hit its lowest close since July and closed more than 18% off its 52-week high.  The NASDAQ fell 1.3% on Friday and finished its sixth negative session in a row for the first time since 2019.  The tech-heavy index fell 4.21% for the week and closed more than 28% off its 52-week high.

“This is the week where everyone’s back, said Ed Moya, senior market analyst at Oanda.  “Everyone’s back to school, back to trading, a lot of people are back into the office.  There’s still a lot of pessimism here that we could continue to see inflation rear its ugly head and that should warrant more aggressive hikes by the Fed.”

Uncertainty is currently the key driver for investors’ nervousness, uncertainty about the future path of inflation and uncertainty about how much the Fed will raise interest rates to fight inflation.  July’s 8.5% CPI reading made the case for some that inflation has topped and will continue to fall.  Others contend that July’s flat CPI was a result of declining energy prices only offsetting rising food, shelter and medical costs.

“The best side for the bulls would be that the market is actually able to stabilize with all the bad news,” said Truist’s Keith Lerner.  “That will at least tell you that the market has taken enough short-term pain.  I’m just looking to see – in an oversold market – can we find any kind of stabilization coming back online after a long weekend.”