The major indexes moved solidly upward this week, closing their most-positive month of 2022. This past week, with a second quarter of negative GDP growth, we met the classical technical definition of a recession. A strong labor market and consumer spending have many policy makers saying the classical definition does not reflect the current economic reality. During July, the Dow rose 6.7%, the S&P 500 9.1%, and the NASDAQ 12.4%. In fixed income, the yield curve remains strongly inverted, with 2-year Treasuries yielding 2.90% vs 2.67% for 10-year Treasuries. This is a recessionary indicator we continue to monitor. Gold and silver were up last week, while oil (WTI) ended the week slightly up, continuing themes of economic and geo-political uncertainty. We saw markets continue to digest information from earnings, policy, and economic indicators leading to a continued volatility in the markets through July and leading us into August on uncharted waters.
Many big names reported earnings, with Google and Microsoft coming early in the week. Both companies came in under expectations in terms of earnings and revenue, however, their results were ‘better than feared,’ and forward guidance issued by the companies took a more positive view. Facebook parent Meta did not fare as well. Their miss, and accompanying guidance, dragged their stock lower. On Thursday, Apple beat estimates and rose slightly. Amazon missed on earnings but saw their share price surge 10% on increased revenue and statements that they see consumer spending remaining strong.
Several weighty economic reports were published throughout the week. New home sales came in well under consensus estimates (91.0 vs 99.0 consensus). Swings in the real estate market are not surprising with interest rates sharply increasing on top of high housing prices. Consumer Confidence moved lower (95.7 vs 98.0 consensus) and preliminary Gross Domestic Product (GDP) growth (-0.90% vs 0.80% consensus, M/M SA) for the second quarter came out Thursday, posting a second consecutive negative quarter. For the month, there were conflicting themes in economic indicators with positives in strong consumer spending and employment versus negatives in high inflation and weakening consumer sentiment. This placed a difficult policy environment for the Fed. On Wednesday, the Federal Reserve announced another 0.75% interest rate hike. Fed Chairman Jerome Powell delivered remarks and answered questions following the committee’s decision. Many viewed his comments as more ‘dovish’ than previously, taking a tone that the Fed may believe their rate hikes are having an effect and opening the door to less extreme hikes moving forward.
Coming off a rough first half to the year, seeing some sustained positive movements in markets provides encouragement. Ephesians 5:15-16 states, “Be very careful then how you live – not as unwise but as wise, making the most of every opportunity.” The last month shows us why the maxim of ‘not timing the market’ is so important to remember. Riding the waves and making tactical shifts allows investors to remained poised for opportunity without missing those ever-important upswings on the days they occur. Though recoveries are rarely linear, and we can expect ups and downs along the way, the conventional wisdom of staying invested traditionally provides the best returns in the long run.
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