Last week closed out the third quarter on a heavy note. The concerning headlines out of the U.K., which almost resulted in pension fund liquidations, contributed to the S&P 500 Index dropping nearly 3% for the week and credit spreads continuing to widen.1 The Bank of England was the first central bank to “blink” in order to stabilize and keep markets functioning.
Corporations continue to lower earnings guidance, which has also weighed on asset prices and sentiment. Additionally, the hot U.S. Personal Consumption Expenditures (PCE) Price Index deflator on Friday will force the Federal Reserve to continue its rate-hiking cycle to control inflation, at the same time that we head into a weaker earnings landscape. Investor sentiment has also felt weak, and that is evident in spreads as well as in fixed-income fund flows. U.S. investment grade saw weekly outflows that represented the third-largest withdrawal from the asset class on record, as investors pulled $10.3 billion.2
The week ahead will be packed with many economic releases, ranging from ISM manufacturing, ISM new orders and U.S. Manufacturing Purchasing Managers' Index (PMI) on Monday to payrolls on Friday. We will also be watching as the Organization of the Petroleum Exporting Countries (OPEC) is considering its biggest production cut since the pandemic. As we embark on the fourth quarter, there will clearly be many macro headlines to focus on, but we will continue to monitor corporates for any more tea leaves regarding 3Q results and the outlook for 2023.
1Source: CNBC - Dow tumbles 500 points on Friday to end September down nearly 9%; 9/30/2022
2Source: Bloomberg - US High-Grade Funds Suffer Third-Biggest Cash Outflow on Record; 9/29/2022
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