Hello all - we hope your July was a nice one.
Markets turned around this month and posted solid gains. The Dow rose 6.7%, the S&P 500 gained 9.1% and the Nasdaq, which has a higher concentration of tech companies, returned 12%.
Markets turned around this month and posted solid gains. The Dow rose 6.7%, the S&P 500 gained 9.1% and the Nasdaq, which has a higher concentration of tech companies, returned 12%.
Here’s a closer look at the markets this month.
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THE FED
A big reason for the rise in stocks this month was the Fed.
They held another policy meeting where they raised interest rates, making it more expensive to borrow money. The move was widely anticipated, so there were no negative surprises to impact the market.
A big reason for the rise in stocks this month was the Fed.
They held another policy meeting where they raised interest rates, making it more expensive to borrow money. The move was widely anticipated, so there were no negative surprises to impact the market.
In fact, comments from the Fed caused stocks to rise.
The Fed emphasized that they would be “data dependent” when shaping policy, meaning they will make adjustments as economic data comes in. Since the data shows the economy weakening and inflation may be topping, it means the Fed is less likely to raise rates and the markets will probably be higher.
The Fed emphasized that they would be “data dependent” when shaping policy, meaning they will make adjustments as economic data comes in. Since the data shows the economy weakening and inflation may be topping, it means the Fed is less likely to raise rates and the markets will probably be higher.
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CORPORATE EARNINGS
Corporate earnings have helped the markets, too.
Earnings haven’t been bad – well, they’ve been bad, just not as bad as investors expected.
Some companies, especially with customers on the lower end like Wal-Mart, are warning that business is slowing and the remainder of the year is likely to be bad.
The reason, they site, is inflation. People are spending more of their money on things like gas, and don’t have as much money to spend on other things.
This isn’t difficult to see in the data. Below is a chart showing inflation for food and power is at the highest level ever. This is hurting the public, especially people at the lower end.
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INFLATION
Continuing with the inflation theme, data out this month showed inflation rising again on a year-over-year basis.
Inflation in June hit 9.1%, another record high of over 40 years.
Investors aren’t as concerned about this number, though. Many believe we’ve hit the peak in inflation since gas prices have been on the decline.
Anecdotally, we still see prices rising in stores and we wouldn’t bet against another higher inflation number in the future. A higher inflation number would be a negative surprise for investors and stocks would likely move lower.
For inflation at the business level (the PPI), inflation looked like it was starting to turn lower, but instead rose again last month. We usually need to see the PPI turn lower before the CPI will.
Investors aren’t as concerned about this number, though. Many believe we’ve hit the peak in inflation since gas prices have been on the decline.
Anecdotally, we still see prices rising in stores and we wouldn’t bet against another higher inflation number in the future. A higher inflation number would be a negative surprise for investors and stocks would likely move lower.
For inflation at the business level (the PPI), inflation looked like it was starting to turn lower, but instead rose again last month. We usually need to see the PPI turn lower before the CPI will.
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OTHER ECONOMIC DATA
Bad economic news has been good news for the market. Most economic releases this month were poor, but as we talked about earlier, that means the Fed will be less likely to pull back on its stimulus and that’s good for the market.
The big economic report this month was GDP, which showed another negative quarter of economic growth. That makes two negative quarters for the GDP and despite what some people claim, this has been the definition of a recession for many decades.
Another indicator we follow as a guide for the strength of the economy is copper. Copper is commonly called “Dr. Copper” because it is used in so many things like homes, factories, electronics, etc., and it gives a good sign of how the economy is doing.
Copper dropped sharply over the second quarter and that can be interpreted as a warning on the economy. It did make a turn higher in July, so the news wasn’t all bad.
Copper dropped sharply over the second quarter and that can be interpreted as a warning on the economy. It did make a turn higher in July, so the news wasn’t all bad.
Both the manufacturing and service sectors of our economy moved lower last month.
Retail sales did well, though, posting another month of gains.
Durable goods - which are items with a longer life, like a phone or dishwasher – rose higher again.
Sentiment has been very bad. Consumer confidence continues to move lower.
Confidence at small businesses is dropping like a rock and is now lower than at the depths of the Covid era.
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Where does the market go from here?
Markets have risen very sharply this month and are now looking expensive on a short-term basis. We aren’t feeling the fear in the markets like a few months ago, which is a positive, but that doesn’t mean stocks can’t take a breather here. We would wait for a pullback before putting new money into the market.
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.
Markets have risen very sharply this month and are now looking expensive on a short-term basis. We aren’t feeling the fear in the markets like a few months ago, which is a positive, but that doesn’t mean stocks can’t take a breather here. We would wait for a pullback before putting new money into the market.
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.
