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A pullback in the markets ended the 4-week win streak this week. For the week S&P was down 1.2%, the Dow was down just 0.2% and the Russell was down 2.9%. 8 of the 11 S&P 500 sectors finished lower with communication services faring the worst. Consumer staples, utilities, and energy were each up at least 1.0%.
Disregarding the red week, the S&P was up 1.1% at most last week on Tuesday. It was just short of its 200-day moving average which provides stiff resistance. After running up almost 19% between its low in June to it’s high on Tuesday, the market was due for a pullback on a short-term over-bought basis, and this strong resistance level was the perfect opportunity for some money to get pulled out of the market.
There weren’t any particular headlines that were the catalyst for this, but there were a mix of smaller headlines that contributed to the mindset. For one, the NAHB Housing Market Index fell for the 8th straight month to a reading of 49, which is considered to be a negative sentiment when below 50. The Empire State Manufacturing survey for the month fell to -31.3 from 11.1, one of the lowest readings on record. Retail sales were flat month-over-month. Fed President Bullard said that he is still in favor of a 75 basis point hike at the next FOMC meeting.
As you can tell, the narrative for the week was that the market got a head of itself while the underlying economic indicators continue to drag. Growth stocks and indexes were down this week compared to their value counterparts. In the same vein, the 10 year treasury note yield pushed 3.00%. These things point to inflation angst and growth headwinds.
This week also had some fallout in the meme stonk space which added to the reality check for a lot of retail investors. Bed Bath & Beyond ($BBBY) dropped over 40% in response to the news that RC Ventures had sold its entire stake and that $BBBY hired consultants to help address the company’s debt load.
Overall, many spaces in the market this week contributed to the broad based poor performance.
Next week we data releases on Durable Goods Orders, a GDP reading, a speech from Fed Chair Powell, employment numbers, and an ISM manufacturing reading to look forward to.
My bullishness last week was wrong, however, I think this last week’s pullback might’ve just been the little break the market needed before continuing a push higher. I see the docket of events on the calendar, and most don’t have terrible forecasts. If anything, the market is ready for bad readings, so anything slightly better than bad might be fuel to push higher. In addition to that, Powell has a talent for telling the market what it wants to hear, so I’m thinking next week we will be in the green.
However, I still believe that the market has more to lose on the long-term. I think that the Fed’s efforts to slow the economy in order to stave off inflation has yet to really materialize. When it does, I think the market has some room to move down and stay down for a decent period of time. Maybe I am just a biasedly a pessimist because I would love to be able to keep buying dividend stocks on deep discount! I tried to do that this week with my buys in Microsoft ($MSFT) and 3M ($MMM) Read the portfolio update here.