The View from 5th Avenue – 19 August 2022

The day had a bad flavor from the start, after global inflation fears were worsened post-German PPIs that came in well above expectations. In addition, supply chain issues were on full display this morning, after Deere narrowed its net income forecasts. Despite the negative headlines, the S&P was on track for its 5th weekly gain in a row - instead we got the first red week of the past 5. Certainly some element of a summer Friday on display, with plenty of seats empty, as shown by S&P volumes down 4.8% vs. the 20-day average despite options expiry. We remain above important levels though, notably 4107 on the S&P cash. With earnings dying down the USD hit a one-month high, and oil sits in a range (watch the 90 support on December Brent). There were only a few sectors in the green for most of the day, most notably Pharma & Energy. The first held on better thanks to positive news on Eli Lilly drug sales, in addition to an optimistic Pfizer management presentation. Along with the headlines, some easing of negative sentiment after the recent Zantac lawsuit is giving names much needed room to breathe. Energy’s move was helped by Berkshire Hathaway proposing to take a stake of up to 50% in Occidental Petroleum. On the underperforming side high growth spaces like Semiconductors & Consumer Discretionary lagged. Value outperformed growth today, as 10-year yields moved higher. Next week brings the Fed’s Jackson Hole conference, ahead of which multiple Fed speakers re-iterated that it is far too early to be focusing on rate cuts. Next week also brings PMI, GDP, and the all important PCE Deflator. The last the Fed’s preferred measure of inflation, and with expectations for a YoY decline it provides the opportunity for markets to once again get caught up in cooling data. Enjoy the weekend.