Week in Review: July 29, 2022

August 1, 2022

Recap & Commentary

Markets ended the week higher despite another 0.75% Federal Reserve rate hike and 2Q GDP data, both of which falls into a common definition of recession. Positive earnings reports from some leading companies and the sense that the Fed might take a more nuanced approach to future rate hikes helped propel the markets to their best week since late June. The 10-Year Treasury yield ended the week at 2.67%, its lowest level since early April and down 0.80% from a recent high of 3.47% in mid-June. The decline reflected ongoing concerns about slowing economic growth as well as evolving views regarding monetary policy.

As expected, the Fed raised rates by 0.75% at its July meeting to a new range of 2.25-2.50%. In its accompanying statement, the Fed acknowledged that “recent indicators of spending and production have softened” before noting ongoing strength in the labor market. Speaking afterward, Fed Chair Jay Powell stated that the Fed should approach future rate decisions on a meeting-by-meeting basis rather than providing more explicit forward guidance. In addition, Powell seemed to imply that the Fed might not continue to raise rates as aggressively as expected, noting a cumulative impact of the recent hikes that has yet to be felt by the economy.

Through Friday, 56% of S&P 500 companies had reported earnings, and 73% of companies have exceeded their earnings estimate. Aggregate earnings growth for 2Q22 is forecasted to be 6.0%, according to industry group FactSet.

Economic Commentary

A busy economic calendar headlined by 2Q22 GDP contracted for a second consecutive quarter. The 0.9% decline was well below the consensus estimate for 0.5% growth but better than the 1.6% decline experienced in 1Q22. The data intensified the debate of whether the economy is heading for, or perhaps already in, recession. Consumer spending remained positive, which accounts for ~70% of economic activity, though the 1.0% pace of growth was the slowest since outright contracting in 2Q20. Reflecting the ongoing normalization of spending behaviors, consumer spending on goods declined for a second consecutive quarter, while services spending increased for the eighth consecutive quarter.

Highlighting the ongoing upward pressure on prices, the Fed’s preferred measure of inflation, core personal consumption expenditure (PCE), rose to 4.8%, the fastest pace in 40 years. The data confirmed the necessity for the Fed’s second consecutive 0.75% rate hike in as many meetings.

Corroborating the recent slowdown in housings starts and existing home sales, new home and pending home sales fell over 8% in June.

Consumers’ outlook remains rather gloomy, with confidence falling for a third consecutive month to its lowest level since February 2021. Sentiment rose slightly but remained near historic lows. The one bright spot was consumers’ views of future inflation, which saw the one-year outlook fall 0.1% to 5.2%, while the five-year outlook fell 0.2% to 2.9%.

Of Note

Congress passed the $280B Chips and Science Act, providing funding for increased domestic semiconductor production and scientific research.

S&P 5004.3%
Small Caps4.3%
Intl. Developed2.1%
Intl. Emerging0.3%
Commodities4.6%
U.S. Bond Market0.6%
10-Year Treas. Yield2.67%
U.S. Dollar-0.8%
WTI Oil ($/bl)$98
Gold ($/oz)$1,723

The Week Ahead

  • July Employment Report
  • ISM Manufacturing
  • ISM Service
  • Weekly Jobless Claims

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