Last Week’s Highlights: Equites finished lower as recession fears begin to rise. The Dow was down 1.11% last week, while the S&P 500 lost 1.80%, the Nasdaq was dropped 3.06%, while the Russell 2000 declined 1.69%. Bonds improved for the 2nd consecutive week as yields declined. The BBgBarc Agg Bond Index was up 1.13% for the week, while short-term bonds improved by 0.44%. The US dollar moved higher last week, forcing international equites lower. The MSCI EAFE Index was down 1.79%, while the MSCI Emerging Markets Index was down 1.49%. Economic Data: There are multiple Fed speakers this week as the Fed minutes from last month’s meeting are released. The key economic data releases this week are Factory Orders, Vehicle Sales, Services PMI, ISM Non-manufacturing PMI, JOLTs Job Openings, FOMC Minutes, ADP Private Employment, WJC, Continued Claims, Average Hourly Earnings, Unemployment Rate, Nonfarm Payrolls, & Wholesale Inventories, . Earnings Releases: There are few earnings this week as 2nd quarter earnings really kick in next week. The earnings releases this week are HELE, LEVI, & WDFC. Takeaways: Consumers appear to have changed their spending habits and it’s beginning to affect Summer vacations. Last week, a survey was released that showed 83% of consumers have slashed personal spending due to soaring prices of food and gasoline. In that same survey, 70% stated they had made changes to travel habits such as avoiding travel to expensive areas, postponing Summer vacations, and remaining within a 10-minute driving distance. Last week’s economic releases showed that Personal Spending declined from +0.6% in April to +0.4% in May. The Fed’s Richmond and Dallas Manufacturing indices both declined substantially month-over month. Both Weekly Jobless Claims and Continued Claims disappointed last week, with Weekly Claims moving lower for a 4th consecutive week. The Payrolls numbers due out Friday for June are expected to be lower than the previous month. There are multiple Fed speakers this week and the market will be parsing the release of minutes from last month’s rate hike meeting to gleam any ideas about the Fed’s next moves. So far, the market is still pricing in a 75 basis point rate hike later this month. There are concerns that 2nd quarter corporate earnings will show the beginning of an earnings recession. Expect trading to be choppy this week as the market digests this information.
The current score of our Recession Indicator suggests that there is a moderate probability of a recession in the next 6-12 months. The Indicator was unchanged last week. It is now at a level of 19. Financial Stress, the Yield Curve, Housing Starts, & the Savings Rate are at positive levels. GDP is at moderate levels. The ANFCI, NAAIM, CPI (Inflation), Consumer Sentiment, Unemployment, & Wages are at levels that are typically associated with recessions.
Wealth Protection Signal:
Description: The Wealth Protection Signal measures panic or “fear” among investors, as well as, “volatility” in the market. The Signal is comprised of a proprietary weighting to the VIX Index (volatility) and to the TED Spread (fear). When these indices spike, major market meltdowns tend to follow. The Signal is also measured against the Yield Curve. When the 1st Cash Raise Level is reached, the Yield Curve (2yr Treasury Bond Yields > than 10yr Treasury Bond Yields) must also be inverted or have been inverted within the past 90 days in order for the 1st Cash Raise to trigger.
Current Level: The current level of the Wealth Protection Signal is at 45.74 as of Friday’s close on July 1st, 2022. The Signal increased 4.8% from the previous week’s close. Though the VIX (volatility) index was relatively flat for the week, the TED Spread (fear) reached the year-to-date high. The Signal would have to increase 53% to reach the 2nd trigger level. The Wealth Protection Signal is currently indicating that investors should have a 10% cash-weighting within their respective asset allocation at this time.