Week in Review: June 3, 2022

Markets ended the week lower following comments by Federal Reserve Vice Chair Lael Brainard, a growing chorus of corporate leaders expressing concerns about the U.S. economy, and May’s stronger-than-expected employment report.

Fed Vice Chair Lael Brainard, often viewed as a “dove” on monetary policy, rejected the idea that the Federal Reserve might pause its rate hikes later this summer in order to ascertain their efficacy up to that point. In an interview with CNBC, Brainard said the Fed has “a lot of work to do” to combat inflation and that its “very hard” to envision a pause in rate hikes at the Fed’s September meeting.

As concerns about the consumer’s ability to withstand continued high inflation intensify, so to has the chorus of corporate leaders sounding the alarm on the possibility of a recession. On Wednesday, J.P. Morgan CEO Jamie Dimon likened the threat of a recession to that of a hurricane, saying while things currently seem fine, he sees an economic “hurricane” approaching. However, by his own admission, Dimon is unsure as to the strength of the storm.

On Friday, Tesla CEO Elon Musk announced that the company will look to cut nearly 10% of salaried employees given his “super bad feeling” about the economy. Musk noted, however, that production headcount related to building cars, battery packs, or installing solar panels would increase.

As talk of recession increases, it is important to remember that the markets are not the economy and vice versa. Thus, while economic growth may slow, it does not necessarily mean that markets will move significantly lower. In fact, if history is any guide, markets often bottom ahead of the broader economy.