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Sorry for missing my articles last week! I was away in Vegas for a long bachelor party weekend, and by the time I was back home I didn’t see the value in writing my regular weekly articles for you guys. Sorry for the lack of heads up, but I am back now and ready to rumble! And boy was it a fun week to come back to!
This week included the end of August and the beginning of September, which is historically the worst month for the stock market. Stocks sold off on Monday, Tuesday, and Wednesday which had the S&P close down -4.2% for the month of August. The Nasdaq was also down those three days and lost -4.6% for the month. Thursday was a little better for the indexes, except NASDAQ which extended its losing streak to 5 days that day. That streak went to 6 days on Friday after some concerning Nord Stream 1 news undercut a possible rebound that was being pushed following the August jobs report.
The August jobs report, though weaker than July’s, was not weak per se. 315,000 jobs were added to nonfarm payrolls, average hourly earnings were up 5.2% year-over-year, and the unemployment rose 0.2%. Regardless of the numbers, there was a belief after the report that it could compel the Fed to begin to be less aggressive with their rate hike at its next September meeting. The Nord Stream 1 news that put a damper on that positivity was a report that Gazprom is going to keep the pipeline shut down due to a technical issue that involves an oil leak. There is no indication of when it will be reopened. This decision came after G7 members agreed to put a price cap on Russian oil exports.
This news brought the week further down, with all of indexes ending the week with loses over -3.0% for the third straight losing week. The catalyst for a lot of the selling interest was a fear of the Fed that carried over from Powell’s stern policy speech in Jackson Hole. The Cleveland Fed President Mester heightened the market’s response with an acknowledgement that she thinks the fed funds rate should be above 4.00% by early next year with no indication of 2023 rate cut. This was a reality check for the market. The Fed’s focus is on fighting inflation with rising interest rates and reducing its balance sheet, this approach slows economic growth and diminishes earnings, putting the Fed’s goals and the market’s goals in conflict.
That understanding has created a sell into strength mindset in the market, which was evident this week along with rising treasury yields and a strong dollar. Growth concerns were evident this week. Copper futures fell almost 8% and oil futures fell 6.4%. This was driven by lower demand concerns that occurred after the Chinese city Chengdu was locked down for Covid-19 reasons. Accordingly, the materials sector was the worst performing sector this week at -5.0% with information technology also at -5.0%. The latter was hurt by losses in mega-cap semiconductor stocks which flushed after news announced a governmental restriction on chip sales to China. The Philadelphia Semiconductor Index fell 7.1%.
Next week is very scarce on the data release front, except for the ISM Services PMI.
As for the way the markets have been moving, my prior bearishness is looking to come to fruition. It is looking like there is still more room to go down as the Fed continues to stand by its hawkish approach and data is beginning to show the slowing effects of that. I think the market has some room to move down and stay down for a decent period of time. Maybe I am just 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 Bank of America ($BAC), Electronic Arts ($EA), and a few others you can read about in the portfolio update here.