Hello all - we hope you had a nice June. Hard to believe we are in the second half of the year.
June turned out to be another bad month for the markets. The Dow was lower by 6.71%, its worst month in over two years. The S&P 500 was lower by 8.3% and the Nasdaq lost 8.7%.
June turned out to be another bad month for the markets. The Dow was lower by 6.71%, its worst month in over two years. The S&P 500 was lower by 8.3% and the Nasdaq lost 8.7%.
The market performance this year has been historically poor. The S&P is down 21% so far this year, making it the worst first-half of the year since 1970. Of course, in 1970 the market reversed in the second half and rose 27% to close the year roughly flat. There is hope!
The bond market has been historically bad, too, with their worst start to a year, ever.
_____
THE FED
A lot of concern remains around the Fed as they pull back on their stimulus. The printing of money and rock-bottom borrowing rates has fueled the market rise in recent years, so it’s only logical for the removal of stimulus to cause the markets to fall.
This month, they raised interest rates again, making it more expensive to borrow money.
A lot of concern remains around the Fed as they pull back on their stimulus. The printing of money and rock-bottom borrowing rates has fueled the market rise in recent years, so it’s only logical for the removal of stimulus to cause the markets to fall.
This month, they raised interest rates again, making it more expensive to borrow money.
The Fed is looking to slow the economy in order to bring inflation down – and that’s what has the markets worried. The odds of recession are rising.
A recession is technically defined as two quarters of negative GDP. The GDP came in at -1.6% last quarter so a negative quarter this quarter would make a recession.
The Atlanta Fed puts out a handy GDP estimate showing negative economic growth over the last quarter, so a recession is very possible.
The Atlanta Fed puts out a handy GDP estimate showing negative economic growth over the last quarter, so a recession is very possible.
_____
INFLATION
Inflation continues to be a big story. Data out this month showed inflation rising again on a year-over-year basis.
Inflation continues to be a big story. Data out this month showed inflation rising again on a year-over-year basis.
At 8.6%, inflation stands at a 40-year high. However, the way inflation is measured has changed over the years. Naturally, the government will only change the inflation measurement if it works in their favor and inflation appears lower.
So, if we were to look at the way inflation was measured in 1990, inflation would be at 12%. In 1980, 17%. By that measurement, inflation is at a record high.
So, if we were to look at the way inflation was measured in 1990, inflation would be at 12%. In 1980, 17%. By that measurement, inflation is at a record high.
For inflation at the business level (the PPI), inflation moved slightly lower on a year-over-year basis.
However, the monthly PPI readings on inflation look very bad.
_____
OTHER ECONOMIC DATA
Economic data released this month was mixed.
The manufacturing part of our economy turned higher, but the service sector continued lower.
Economic data released this month was mixed.
The manufacturing part of our economy turned higher, but the service sector continued lower.
Retail sales had been a bright spot, but they turned lower last month.
Durable goods - which are items with a longer life, like a phone or dishwasher – rose higher.
The confidence surveys were newsworthy this month.
There are two different consumer surveys – one by Univ. of Michigan and the other by the Conference Board (they are a business membership group and economic researchers). We usually cite the conference board survey since it always seemed “cleaner” to us, but they both have their usefulness.
The Univ. of Michigan survey hit its lowest reading in the existence of the survey. Looking at the chart, its hard to believe the current sentiment is worse than many other bad times they highlight.
There are two different consumer surveys – one by Univ. of Michigan and the other by the Conference Board (they are a business membership group and economic researchers). We usually cite the conference board survey since it always seemed “cleaner” to us, but they both have their usefulness.
The Univ. of Michigan survey hit its lowest reading in the existence of the survey. Looking at the chart, its hard to believe the current sentiment is worse than many other bad times they highlight.
The survey from the Conference Board was lower, too, but not at the same degree as the Univ. of Michigan.
What was noteworthy about the Conference Board survey was their survey of people’s expectations about the future. People are very pessimistic, to a level not seen in almost a decade.
Lastly, small business owners continue to be very pessimistic.
_____
Where does the market go from here?
Investors are extremely pessimistic. Bank of America maintains a gauge of investors to see how optimistic or pessimistic they are (bullish or bearish). That gauge hit its lowest level possible of 0. It also hit 0 in other periods of extreme pessimism, like in the dot-com crash in 2002, or the 2008 recession, or the depths of Covid in 2020.
Investors are extremely pessimistic. Bank of America maintains a gauge of investors to see how optimistic or pessimistic they are (bullish or bearish). That gauge hit its lowest level possible of 0. It also hit 0 in other periods of extreme pessimism, like in the dot-com crash in 2002, or the 2008 recession, or the depths of Covid in 2020.
Extreme pessimism can be a good time to buy – but investors must have a long enough timeline. As we’ve seen this year, short rallies that looked like good buying opportunities ended up seeing the market fall further.
We can continue to see selling pressures as the Fed pulls back further and the economy tightens. It’s a difficult investing environment, but those can be good buying opportunities, too.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
We can continue to see selling pressures as the Fed pulls back further and the economy tightens. It’s a difficult investing environment, but those can be good buying opportunities, too.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
