Three Things to Know & Watch – 1 Nov, 2022

By Bill Hornbarger, Chief Investment Officer


Three Things to Watch

  • The FOMC meets this week and will be the focus of attention. The Fed is expected to announce the reduction of monthly purchases of Treasury and mortgage-backed securities this month. Market participants will also pay close attention to the rhetoric surrounding inflation. The Fed has been unwavering in its communications to date, that inflation is transitory despite recent strong readings. Currently, futures are pricing in at least two quarter-point increases in the target Fed funds rate by the end of 2022.
  • Economic data on tap this week includes ISM manufacturing and service reports, construction spending and, on Friday, the October employment report. Both ISM numbers are expected above 60, which would be very strong and historically has been consistent with changes in monetary policy, while the employment report is expected to be stronger than the previous two (which were disappointing). Non-farm payrolls are forecast to add 450,000 new jobs while the unemployment rate is expected to decline to 4.7% and wages are expected to grow at a strong 4.9% rate year-over-year.
  • Earnings season continues this week including a number of tech and semiconductor companies. Inflation and supply chain issues (particularly for chip companies) will be on investors’ minds after the weak Q3 GDP number and the elevated inflation readings from last week.

Three Things to Know

  • The State Street Investor Confidence Index provides an objective, quantitative measure of global risk tolerance of the world’s sophisticated investors. State Street’s approach measures confidence directly and quantitatively by assessing the changes in investor holdings of risky assets. The idea is simple: The more of their portfolios that sophisticated investors are willing to devote to riskier as opposed to safer investments, the greater their risk appetite or confidence. Regional components measure separately the risk appetites of institutional investors in North America, Europe and the Asia-Pacific region. The most recent North America reading was released on Oct. 27 and hit 114.4, the highest level since March 2016 and up from the Covid low of 73 in May 2020. The measures for Europe and Asia have fallen and are below the U.S. index. This is a clear sign that investors prefer the U.S. to anywhere else. (Source: Bloomberg, State Street)
  • At the end of September, the Federal Reserve had a portfolio totaling $8.45 trillion, of which $5.43 trillion is U.S. Treasury securities. In January 2020 (pre-Covid) those amounts were $4.15 trillion and $2.41 trillion, respectively. (Source: Haver)
  • Lead times — the time between when a semiconductor is ordered and when it is delivered — rose to a record of nearly 22 weeks in October, almost double pre-pandemic lead times. (Source: Goldman Sachs)

 

The above information reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security mentioned.