Weekly Market Update – 1 August 2022

Markets shrug off negative data to post substantial gains when least expected

It was one of the year’s busiest weeks, which held several catalysts for financial markets, though global markets recorded a solid 3.56 per cent gain despite what would be widely considered as negative data out from international markets. 

A continued outsized 75 bps hike from the Federal Reserve and GDP data detailing that the U.S. economy had entered a technical recession did little to spook the market in the last week of July, with the Nasdaq and the S&P500 up over 9 and 12 per cent, respectively in the month of July gone past. 

Stocks rallied strongly last week on comments from July’s Federal Open Market Committee (discussed below), in which the Federal Reserve may potentially slow down its pace of aggressive interest rate hikes later this year, which resulted in markets seemingly reprice in a lower terminal funds rate and saw growth exposure outperform value. 

Additionally, the past week saw a crowded period of results with over half of the companies within the S&P500 Index reporting, with particular attention put on important tech companies within the mega-cap space, being Amazon, Apple, Alphabet (Google), Microsoft, and Meta (Facebook).  

As these five companies alone represent nearly 40 percent of the Nasdaq and 20 per cent of the S&P500, whichever way the majority of these five stocks move, you can expect the broader stock market to follow. 

As a whole, the majority of the Big Tech was more resilient than many had feared, with Apple and Amazon beating expectations in what would be considered as the start of gloomy earnings seasons to come, weighed down by inflation, consumer confidence, and economic turmoil.  

The stronger than expected earnings from Apple and Amazon led to a one-day jump of 4 plus per cent last week for the Nasdaq, the most substantial gain since April 2020. 

On the flip side, Meta came in well below expectations and fell over 6 per cent post its results. The social media company reported its first-ever decline in advertising revenue in over ten years and expects the softening in ad revenue to continue going forward, with CEO Mark Zuckerberg detailing that Meta has seen a material shift in business behaviour, with companies now bracing for inflation via cutting advertising spending in what is an economic slowdown environment. 

Commentary from several companies which reported detailed that no one company was immune to recent economic pullback, with many companies flagging increased cost pressures, less demand for products, and uncertainty in the broader economy. This has led Meta and other technology companies such as Google to reduce hiring numbers as a direct result of the current economic conditions. 

July’s Fed Decision: another 75bps hike

As unsurprising to most, the Federal Reserve raised rates by 75bps in its July FOMC meeting to combat inflationary pressures at 40-year highs. 

The consecutive three-quarters of a percentage point hike in both June and July’s FOMC meetings represents the most decisive action the Fed has taken since the early 1990s. 

The hike now brings the federal funds rate to 2.25 and 2.50 per cent, with members of the central bank voting unanimously in favour of the sizeable interest-rate move.  

In a Q&A and commentary to the press, Fed Chair Jerome Powell acknowledged that growth within the U.S. economy had slowed. However, he noted that the labour market remains very tight, with unemployment at its lowest since the 1960s. 

Powell admitted that inflation had risen by more than the central bank had expected and reiterated that Fed’s main job is to restore price stability, commenting that a third considerable 75bps increase could be on the tables in the Fed’s next meeting in September if inflation does not begin to slow. 

However, Powell emphasised that there are over 50 days until that next meeting occurs and that each new piece of data will be closely watched to guide decisions around the size and pace of interest rate hikes going forward. Commenting that depending on how inflation responds in the coming months, it could allow the central bank to begin to slow the pace of rate increases in the months ahead. 

When questioned on whether the U.S. was in recession already, Powell argued that it didn’t seem as if the U.S. economy was in recession due to the strength of the labour market and that a range of different indicators across the entire U.S. economy tends to determine a recessionary period rather than one or two negative GDP prints. 

He suggested that the first estimate of second-quarter GDP data coming the following morning after he spoke (discussed below) should be taken with a ‘grain of salt’ as the numbers tend to be revised quite significantly after that. Furthermore, he stated that if the GDP data were indeed negative, the Fed wouldn’t alter its stance because of the strength in the labour market and elevated inflation. 

 For markets responding to this data, it was a question if they believed the Federal Reserve could execute its preferred soft-landing scenario by slowing the economy and inflation just enough to avoid recession. Evidently, markets believed this notion with quite extraordinary gains following the meeting. 

Markets have shifted expectations as a result from July’s FOMD meeting, with investors now pricing in a 50bps hike in September’s FOMC meeting and a further two 25bp hikes in Nov and Dec, which would take the federal funds rate to 3.25 and 3.50 per cent. 

US enters technical recession as GDP contracts again

The U.S.’s first estimate of second-quarter Gross Domestic Product, a broad measure of the goods and services produced across the economy, was watched closely last week, following what was a negative first quarter GDP reading for the U.S.

As many had anticipated, the estimate once again detailed that the U.S. economy shrunk for the second quarter in a row, with GDP contracting by an annualised rate of 0.9 per cent.

The GDP report detailed that high inflation, supply-chain issues, and weakening consumer confidence all continuing to be challenges for business activity and households within the U.S.

There wasn’t much in the report’s commentary that we didn’t already know.

Regardless, inventories were the biggest detractor from the U.S.’s Q2 GDP figure, as there was a noticeable shift in consumer spending, pivoting away from discretionary goods to essential services, which has led many companies with stockpiles of products that are forced to be offloaded.

As a reminder, the negative Q2 GDP print follows a more resounding 1.6% contraction in the U.S. economy in the first three months of 2022.

Though the U.S.’s economy contracted slower than in the first quarter, the country has still logged two consecutive quarters of negative GDP figures, which now meets the commonly used definition of a recession.

The White House contended the recessionary fears immediately, stating that the negative print does not constitute a recession and that the declaration of a recession is made by the National Bureau of Economic Research (NBER).

Instead of the commonly known definition of the two back-to-back quarters of GDP contraction, the NBER utilises a range of indicators, including the labour market and monitoring of business conditions, with the former remaining exceptionally strong and the latter yet to see material closure rates or mass lay-offs.

Irrespective of what criteria constitutes a recession, the reality is that the U.S. economic health continues to deteriorate.

As the Federal Reserve has indicated above, the data is unlikely to result in a significant pivot from the central bank in its upcoming September meeting as inflation remains heightened and the labour market remains extremely tight. Only once the Federal Reserve tames inflation and weakens the labour market will the pace of interest rate hikes slow. However, until that is done, the likely scenario sees the Fed continuing its hikes into an economy currently in a technical recession.

Australia’s inflation records new highs but comes in lower than forecasts

Leading up to the RBA’s monetary policy, local CPI data was highly anticipated as it would provide insight into the size of the cash rate increase at its next monetary policy decision meeting this Tuesday.

The annual headline Consumer Price Index Data came in at 6.1 per cent, the highest in over two decades, though it was softer than market expectations which were at 6.2 – 6.3 per cent. This print follows a 5.1 per cent headline figure from the year through to March.

The RBA’s preferred measure, core inflation, which strips out volatile inputs such as energy and food from the basket of goods, continued to record new heights, with core inflation up over 4.9 per cent and slightly surpassing consensus expectations.

Unsurprisingly, rises were observed in the prices of non-discretionary items such as petrol, food, health, and housing, which made up much of the increase, with distressed supply chains and high transport costs also contributing to the rise.

Notably, the beforementioned core inflation figure now sits even further from the Reserve Bank of Australia’s 2 to 3 per cent target band for inflation.

So, what does this figure mean for the RBA?

This CPI print largely cements expectations that the current cash rate would be increased by 50bps in the RBA’s policy meeting tomorrow, which would bring the cash rate to 1.85 per cent.

Several economists forecast a super-sized 75bps increase in the RBA’s meeting, in line with the Federal Reserve, which would take the cash rate to 2.1 per cent.

However, we believe this significant increase is unlikely to occur given the RBA’s eleven interest rate meetings annually compared to the Federal Reserve’s eight.

We will summarise the decision in next week’s post, regardless of how big or small the hike is.

 ASX Weekly Wrap  

Our local market tracked below global peers, though still notched a healthy gain, with the ASX 200 up over 2.3 per cent for the past week.

As a reminder, our local market tends to underperform global indices on a relative basis in a bull market, though it tends to outperform in a bear market.

This is noticed immediately when looking at the ASX’s relative performance against comparable global indices, with the ASX outperforming global indices significantly in the half of 2022.

With that said, the ASX still recorded a substantial gain of 5.74 per cent for July, which has seen the ASX200 down only 8.5 per cent from the start of 2022, a material recovery since the 15 per cent dip seen in mid-June.

In terms of last week, both small and mid-caps outperformed the broader market, with gains of 3 per cent whilst large caps gained about 2.6 per cent.

Our Prime Australian Growth SMA saw sixteen positions gain further ground and six positions detracting from the performance of our portfolio.

Gold miner Northern Star Resources (NST) was the strongest performer, gaining over 10 per cent for the week as the spot price for gold gained some ground following the weak US GDP print to $US1750/ton. Additionally, NST received several BUY upgrades from a suite of brokers who assisted in the miner recording the substantial gain.

Conversely, the biggest detractor was Telstra (TLS) which dropped 1.8 per cent and is primarily a result of the broader market’s rotation away from defensive-based exposure into more growth assets.

In other market news, the beaten down Buy-now Pay-Later sector notched some eye-watering gains last week, with Sezzle Inc (SZL) and Zip Co Ltd (ZIP) recording increases of over 170 per cent and 35 per cent. These extreme gains come from solid momentum in similar BNPL players listed on the Nasdaq. However, they come from what has been a disappointing ride for shareholders after the two companies have had over an 80 per cent decline in their share prices over the last 12 months.

The next six weeks prove vital as earnings season kicks off in our local market, providing insight into how companies are faring in an uncertain environment. Higher input costs, supply chain bottlenecks, and labour shortages are just a few factors impacting most businesses, which are likely to place pressure downwards on maintaining profit margins.

It will be interesting to see how companies are managing and changing in difficult times, though commentary regarding the outlook for the 2022–2023 financial year will be more critical because the market will closely scrutinise any forward guidance.

Stay tuned and we will recap earnings as they come along.

Looking ahead

Monday 1st August 2022 – Friday 5th August 2022

  • Monday: CN Caixin Manufacturing PMI (July)
  • Tuesday: AU RBA Interest Rate Decision, US ISM Manufacturing PMI (July)
  • Wednesday: US JOLTs Job Openings (June)
  • Thursday: AU Balance of Trade (June), UK BoE Interest Rate Decision, US Balance of Trade (June)
  • Friday: AU RBA Statement on Monetary Policy, US Non-Farm Payrolls (July)

Friday 29th July, 5pm values

All Ordinaries 71741622.3%
S&P / ASX 20069451542.3%
Property Trust Index1471553.9%
Utilities Index7827961.2%
Financials Index63041532.5%
Materials Index155907344.9%

Friday 22nd July, closing values

U.S. S&P 50041301694.3%
London’s FTSE74231472.0%
Japan’s Nikkei27795-120-0.4%
Hang Seng20113-496-2.4%
China’s Shanghai3253-17-0.5%

Key dividends

Monday 1st August 2022 – Friday 5th August 2022

  • Monday: Div Pay-Date – Collins Foods Ltd (CKF)
  • Tuesday: N/A
  • Wednesday: N/A
  • Thursday: Div Pay-Date – Arena REIT No.1 (ARF), Uniti Group Ltd (UWL)
  • Friday: Div Pay-Date – Centuria Industrial REIT (CIP),


Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Michelle BromleyT: (03) 8825 4751
Livio Caiolfa T: (03) 8825 4748Nicole LewisT: (03) 8825 4734
Marcus AingerT: (02) 9134 6292Nicholas MillerT: (03) 8825 4722
Dylan CresswellT: (03) 8825 4707Gina McIntoshT: (07) 3557 2557
Jarrod Rodda T: (03) 8825 4729

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.


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