Week in Review: July 1, 2022


Week in Review: July 1, 2022

Consumers become more pessimistic and cautious on spending


Market summary

The S&P 500 and Nasdaq ended the week lower. Most sectors weakened, as industrial metals, semis and retail performed the worst, and trucking and rails, managed care and waste performed the best. Growth underperformed Value. Treasuries rallied across the curve, with 10-Year and below durations falling over 20 basis points, bringing them below 3% again. The dollar strengthened this week.

This week   

This week’s economic data revealed consumer confidence and spending continue to weaken. Consumer confidence fell to a February 2021 low of 98.7 in June. Consumers cited inflation as their primary concern, which lowered their near-term purchasing plans as interest rates rise and savings wane. However, despite elevated pessimism in the latest survey, we see strength in the more present situation index as the labor market remains resilient.

May’s spending rose by just 0.2% in nominal terms and fell when adjusting for inflation, as consumers cut back on goods purchases and spent moderately on services. Services spending has also slowed from its rapid pace earlier in the year. Inflation took a larger chunk out of households’ income in May. Personal incomes still rose by a strong 0.5% last month, reflecting the continuing strength of wage growth and payroll gains. With income growth outpacing spending, the personal savings rate rose 0.2ppt to 5.4% in May (see Figure 1). The increase in the savings rate historically shows that consumers are becoming more cautious with their spending. A more cautious consumer would be worrisome for growth, as consumption is 70% of GDP, and weaker consumer spending will weigh on growth. We believe that consumer spending will moderate as consumers remain cautious about how they spend their money.

This week we also saw signs that manufacturing is starting to slow as supply-side disruptions persist. The ISM Manufacturing Index fell to a two-year low of 53 in June, furthering concerns of slowing economic growth. The new orders index declined to 49.2 from 55.1 the prior month, and job growth continued to decline. This further adds to our view that manufacturing growth will likely slow in the second half of 2022. We expect manufacturing will continue to be challenged by supply constraints, high input prices and high interest rates. That said, a more positive message from the ISM Index is that shortages are easing more rapidly. Supplier order backlog and supplier delivery times declined to two-year lows, demonstrating supply constraints are easing quicker than expected (see Figure 2).  

Financial markets feel that growth is slowing. Credit spreads, which can be helpful in judging the severity of the slowdown, continue to widen as bond market volatility remains high. With the Fed hiking interest rates aggressively and the economy feeling the pressure from rate hikes, we expect further credit spread widening ahead. As yesterday was the close of the second quarter, we begin the summer earnings season. We expect earnings for the second quarter to skew above consensus but are weary of forward guidance and note weakness underneath the surface. Corporate guidance is drifting lower as companies are starting to lose pricing power. As input prices remain high, this in turn hurts corporate profit margins and weighs on corporate earnings. We expect earnings guidance will continue to drift lower amid higher interest rates and less consumer demand.

Going Forward

Equity and bond market volatility will remain elevated until there’s greater clarity on the path of inflation. We see opportunities to diversify income sources and raise the quality of portfolios during this volatile period across asset classes. Within equities, we continue to favor U.S. Large Caps, since economic growth is rapidly slowing in Europe, and China’s strict COVID policies have weighed on manufacturing. Within U.S. Large Caps, we continue to advocate for a defensive positioning in equities, favoring segments exhibiting quality and yield. In fixed income, we remain short duration and higher quality in our positioning.       

Have a happy and healthy 4th of July weekend!



  • May’s durable orders are expected to decline to –0.30% month over month and will be released on Tuesday.
  • June’s ISM Services PMI index is expected to decline to 54.7 and will be released on Wednesday.
  • June’s Nonfarm Payrolls are expected to decline to 250K and will be released on Friday.  


Figure 1:U.S. savings rate

      savings rate

Source: Bureau of Economic Analysis, First Republic Investment Management, as of July 1, 2022.

Figure 2: Contribution to headline ISM Manufacturing (Index; above 50 = expansion)

      ISM contribution
Source: Institute for Supply Management, First Republic Investment Management, as of July 1, 2022.



Market Returns (USD) as of 6/30/2022





Global Equities

MSCI All Country World

0.0% -15.7% -20.2% -15.8%

S&P 500

-0.2% -16.1% -20.0% -10.6%

Dow Jones Industrial Average

0.3% -10.8% -14.4% -9.1%


-1.8% -22.3% -29.2% -23.4%

Russell 2000

-0.2% -17.2% -23.4% -25.2%

First Republic Founders Index

-2.6% -22.6% -32.6% -36.7%

Russell 1000 Equal Weighted

-0.3% -15.3% -16.3% -12.8%


0.5% -14.5% -19.6% -17.8%

MSCI Emerging Markets

0.8% -11.4% -17.6% -25.3%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.3% -1.0% -5.6% -5.5%

Bloomberg Barclays Intermediate Government/Credit

0.3% -2.4% -6.8% -7.3%

Bloomberg Barclays High Yield Bond

-1.2% -9.8% -14.2% -12.8%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

3785.38 3795.73 4766.18 4297.5

Dow Jones Industrial Average


30775.43 30677.36 36338.3 34502.51

10-Year U.S. Treasury Yield (Constant Maturity)

2.98% 3.07% 1.51% 1.45%

Gold ($/oz)

$1,807.05 $1,822.30 $1,821.90 $1,770.30

Crude Oil ($/barrel)

$105.76 $104.27 $75.21 $73.47

U.S. Dollar / Euro ($/)

1.05 1.05 1.14 1.19

U.S Dollar / British Pound ($/£)

1.21 1.23 1.35 1.38

Japanese Yen / U.S. Dollar (¥/$)

135.86 134.47 115.16 110.99

Bitcoin Futures ($/XBT)

$18,760.00 $20,900.00 $47,977.03 $34,725.00