By Rick Schwerd |
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for
our next update on August 7.
Middle East Escalation Leads to Volatility
Iranian-backed Houthi militants attacked two Saudi oil tankers in the Red Sea on Wednesday, propelling West Texas
Intermediate (WTI) crude oil prices back above $90 per barrel. This helped push benchmark 10-Year U.S. Treasury
yields above 4.70 percent due to inflation fears, their highest level in 18 months. All of this led to further
volatility in equity markets this week.
The conflict is now in its fifth month and shows little sign of ending in the near term. The U.S. military has
completed nearly two weeks of daily strikes on targets in Iran and U.S. Secretary of State Marco Rubio stated that
Tehran is currently “not serious about talks.”
For the last three and a half years, the 10-Year Treasury has been in a range roughly between 3.90 percent and 4.80
percent. We are paying close attention as the 10-Year Treasury approaches the upper end of this range. If the yield
breaks through the 4.80 percent range and approaches 5 percent, there would be a greater likelihood of a significant
pullback in equities.
Blowout Earnings Season So Far
Second-quarter earnings season is off to a very strong start. According to research provided by Earnings Scout, 122
of the S&P 500 companies have reported so far. Approximately 90
percent of companies have beat expectations and earnings and sales growth are running two to three times above
long-term averages. Both sales and earnings are coming in higher than last quarter, when we saw 20 percent
year-over-year earnings growth.
More importantly, 57 percent of companies have seen their third-quarter earnings estimates increase. As we mentioned
in our last update, the S&P 500 price-to-earnings ratio is well
below where it was last year at this time – meaning, based on this measurement, stocks are cheaper than last
year, and the difference has widened over the last two weeks.
Better Than Expected Inflation Data
Last week’s Consumer Price Index (CPI) data came in better than expected. The headline number remained at 3.5
percent from the previous month. Core-CPI, which removes volatile food and energy prices came in at 2.6 percent,
lower than expected and below May’s 2.9 percent reading.
The data remains higher than the Federal Reserve’s 2 percent target and unfortunately may increase given the
recent increase in oil prices. The Fed meets next week and is likely to remain on hold. However, the committee will
likely face increasing pressure to raise rates at future meetings to tame inflation.
Looking Ahead
Next week will be one of the most important weeks of earnings season, with mega-cap companies Visa, Microsoft, Meta,
Procter & Gamble, Apple, Amazon and a slew of others reporting. Next Thursday, we get the first look at
second-quarter GDP. The following week, July labor market data will be released.
As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out
to us at (518) 415‑4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a
Senior Investment Officer at Arrow Bank. He oversees individual and corporate retirement plans, personal trusts,
investment management accounts, foundations and not‑for‑profit relationships.