Stocks Rise and Post a Weekly Gain…..

U.S. stocks closed solidly higher and, in the process, snapped a three-week losing streak for the broad-based S&P 500 Index which had posted weekly declines in 10 out of last 11 weeks. The sharp rebound came as investors largely brushed aside lingering concerns about a recession as the Fed, and other global central banks have aggressively hiked rates to try to tamp down the persistent surge in inflation. Yields moved higher as U.S. Treasuries gave back some of a recent rally this week that put noticeable downside pressure on yields. Meanwhile, the U.S. dollar extended its weekly decline after recently rallying to multi-decade highs. Crude oil prices rebounded from the week’s solid drawdown, and gold saw a modest increase. The economic calendar offered some upbeat reports as new home sales unexpectedly jumped, and although consumer sentiment hit a record low, the inflation outlook components improved. In equity news, FedEx missed quarterly estimates but offered upbeat guidance, while all 34 financial institutions that participated in the Fed’s annual stress test passed. Asia finished out the week in positive fashion and Europe closed broadly higher as the global markets show some resiliency in the face of recession worries.

The Dow Jones Industrial Average gained 823 points (2.7%) to 31,501, while the S&P 500 Index increased 116 points (3.1%) higher to 3,912, and the Nasdaq Composite advanced 375 points (3.3%) to 11,608. In heavy volume, 7.7 billion shares of NYSE-listed stocks were traded, and 9.0 billion shares changed hands on the Nasdaq. WTI crude oil rose $3.35 to $107.62 per barrel. Elsewhere, the gold spot price inched up $0.50 to $1,830.30 per ounce, and the Dollar Index declined 0.3% to 104.16. Markets were higher for the week, as the DJIA gained 5.4%, the S&P 500 increased 6.5%, and the Nasdaq Composite rose 7.5%.

The June final University of Michigan Consumer Sentiment Index was revised unexpectedly to a record low 50.0 level, from the preliminary 50.2 figure, where the Bloomberg consensus estimate called for it to remain. The downward revision came as the current conditions portion of the survey was adjusted to the downside, while the expectations component was revised higher but remained depressed. The overall index was below May’s 58.4 level and the all-time low came as both current conditions and expectations were down sharply month-over-month (m/m). The 1-year inflation forecast was revised lower to 5.3% from the preliminary estimate of 5.4%, where it was expected to remain, and matching May’s rate. The 5-10 year inflation forecast was revised lower to 3.1%, from the preliminary read of 3.3%, where it was expected to remain, but above May’s 3.0% rate.

The University of Michigan told Bloomberg that overall, the late-June reversion in long run inflation expectations was generated by growth in the share of consumers expecting extremely low inflation in the years ahead, while about half expressed bleak views about the risks of recession or unemployment.

In housing news, new home sales jumped 10.7% m/m in May to an annual rate of 696,000 units, well above forecasts calling for a rate of 590,000 units, and above April’s upwardly-revised 629,000-unit level. The median home price rose 15.0% y/y to $449,000. New home inventory declined to 7.7 months from April’s level of a 8.3 months of supply at the current sales pace. Sales increased solidly m/m in the South and jumped in the West, while falling in the Midwest and tumbling in the Northeast. Sales in the South and West were modestly higher y/y, while sales in the Northeast and the Midwest were sharply lower. New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.

Treasuries lost ground after seeing some gains this week that put downside pressure on yields as the markets appeared uneasy about the economic implications of an aggressive Fed to fight persistent inflation, with recession chatter heating up. Financial conditions continued to tighten amid the uneasiness and market skittishness was exacerbated by the prospect of the Fed tightening policy amid the backdrop of a slowing economy, which was illustrated by this week’s larger-than-expected slowdowns in manufacturing and services sector growth that was reported by S&P Global.

©2022 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.