This too shall pass...
Most major markets continued their weekly move to the downside. Prior to last week's gains the S&P and Nasdaq had suffered seven consecutive weekly declines. You have to go back to the dot-com bust to see the last time these markets have had that kind of move lower. The DOW finished the holiday shortened week lower by 0.9%. Nasdaq was down 1.0% while the TSX, on the back of more energy sector strength bucked the trend to finish up by 0.2%. Investors continue to be concerned about inflation and the Fed's attempt to crack inflationary pressure by raising interest rates and shrinking their balance sheet by "Quantitative Tightening". It looks like some cracks may be starting to show. Once high flying companies such as Netflix, Robinhood and Peloton have announced or started job cuts. Even Elon Musk suggested on Thursday that Tesla may look to cut as much as 10% of their workforce as he has a "super bad feeling" about the economy. More job losses are coming. That's one of the things the Fed needs to see to prevent a cycle of labour inflation that would prolong the inflationary trends.
The other place cracks are showing is in the housing market. US new home sales have dropped to their lowest levels since the beginning of the pandemic. Significantly higher interest rates and resulting higher mortgage rates will do that. A housing slowdown will start to creep into other sectors. We've seen lumber prices drop by over 50% since March. We will likely see drops in demand for other housing inputs which will put a drag on the overall economy. More cracks are coming.
One sector that seems impervious to higher rates for the time being is the energy sector. You're probably getting tired of hearing me say it but this continues to be the one sector that is bucking the general market downtrend. WTI closed the week at $120.26 per barrel and it appears to be well on its way to testing the Ukraine conflict induced price spike of $130. Out of the 23 stocks hitting new 52 week highs on the TSX on Friday, 18 were oil and gas related companies. |