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Bob Carey
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  US Stock Markets Ended August 26, 2022
Posted Under: Weekly Market Commentary
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Stocks had a volatile week before ending down on the hawkish comments by Federal Reserve Chairman Jerome Powell from Jackson Hole, Wyoming. The comments are a sign of a fizzling summer rally as investors look to position themselves away from emerging markets as the dollar gains strength on the back of increasing interest rates. The stronger dollar was a boost for energy stocks as the S&P 500 Energy sector posted over a 4% gain last week. Technology stocks lagged all other sectors with over a -5.5% decline. Megacap Alphabet Inc, the parent company of Google, traded lower by almost -6% as investors weigh the impact of an inflation-fighting Fed that is willing to tolerate “some pain”; and the lower growth outlook resulting from increased rates. The Fed chairman warned, “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses." High growth names, and the tech sector in particular, will be affected the most by rising rates as future earnings will have to be discounted at higher rates, thus depressing earnings multiples. A positive sign of the signaling action by the Fed is companies will be able to manage rising costs with the help of the policies set forth by the central bank. The viability of potential peak inflation and the Fed’s future action to curtail more inflation should give companies a stable outlook going into the next quarter. Currently, margin erosion from higher prices has hit retail companies’ bottom lines and lowered outlooks. Retailer Nordstrom lost 20% of its value last week as rising costs hurt profits and led management to rethink guidance going to into the all-important holiday shopping season. Looking ahead to next week, economic releases about housing and jobs will give investors a look at how various markets have handled the forecasted interest rate increases.  

Posted on Monday, August 29, 2022 @ 8:02 AM • Post Link Share: 
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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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