This Weekly Financial Markets Update reviews the top market headlines: Business Surveys Reflect Diverging Trends, Job Gains Surprise to the Upside, Yield Curve Inversion Widens

Top Three Market Headlines

Business Surveys Reflect Diverging Trends: Business activity in the U.S. continued to expand in July, according to surveys of executives by the Institute for Supply Management (ISM), though trends diverged between the manufacturing and services sectors. Activity in the former decelerated, with the ISM Manufacturing Index registering 52.8%, down from its June reading of 53.0%. Though still reflecting expansion (a reading above 50% indicates expansion of activity, while a sub-50% reading spells contraction), the July reading was the lowest since June of 2020. Alternatively, activity in the services sector was more resilient in July, with the ISM Services index rising to 56.7% versus 55.3% in June.

Job Gains Surprise to the Upside: The Labor Department reported last week that U.S. nonfarm payrolls rose in July by 528,000, the largest monthly increase in five months. Growth was led by gains in leisure and hospitality, professional and business services, and health care. Meanwhile, the unemployment rate ticked down from 3.6% to 3.5% in July. Both measures, total nonfarm employment and the unemployment rate, have now returned to their pre-pandemic levels in February 2020. The report also reflected the on-going wage pressures facing businesses, as hourly earnings increased at a rate of 5.2% over the prior 12 months.

Yield Curve Inversion Widens: Last week saw the 2-year Treasury bond yield exceed that of the 10-year Treasury bond, an infrequent occurrence known as an inverted yield curve, for the fifth straight week. The typical yield premium offered by the longer-dated bond turned negative in early July and has remained so ever since. With the 2- and 10-year bond yields ending last week at 3.22% and 2.83%, respectively, the spread between the two fell to -0.40%, the widest inversion since 2000. Observers watch this relationship closely, as economic recessions often have been preceded by an inverted yield curve; however, there have also been occasions when an inverted curve gave a "false signal" and did not foretell a recession.

As of August 08, 2022 Week Quarter-To-Date Year-To-Date One-Year
MSCI All Country World 0.31% 7.31% -14.34% -11.24%
S&P 500 0.39% 9.64% -12.24% -5.01%
Russell 2000 1.96% 12.61% -13.77% -13.00%
MSCI EAFE -0.65% 4.30% -16.11% -16.24%
MSCI Emerging Markets 0.96% 0.72% -17.04% -20.72%
FTSE NAREIT -2.02% 6.86% -14.73% -4.95%
Bloomberg Commodity -3.22% 0.91% 19.52% 24.39%
Barclays U.S. Aggregate -1.04% 1.38% -9.11% -10.08%

Institute for Supply Management 8/3/2022, U.S. Bureau of Labor Statistics 8/03/2022, Bloomberg 8/5/2022. Data from Morningstar Direct. Returns for periods greater than one year are annualized. Gallagher Fiduciary Advisors, LLC ("GFA") is an SEC Registered Investment Adviser that provides retirement, investment advisory, discretionary/named and independent fiduciary services. GFA is a limited liability company with Gallagher Benefit Services, Inc. as its single member. GFA may pay referral fees or other remuneration to employees of AJG or its affiliates or to independent contractors; such payments do not change our fee. Securities may be offered through Triad Advisors, LLC ("Triad"), member FINRA/SIPC. Triad is separately owned and other entities and/or marketing names, products or services referenced here are independent of Triad. Neither Triad, Arthur J. Gallagher & Co., GFA, their affiliates nor representatives provide accounting, legal or tax advice.