Seasonality or Soft Landings?

Indexes wrapped up a tough week, with the Dow and NASDAQ both losing 4.8% and the S&P 500 shedding 5.8%—its worst week since the pandemic roiled markets in March of 2020. Coming off hotter-than-expected Consumer Price Index numbers the week before, investors tried to gauge how the metric would influence the Federal Reserve’s decision on interest rates. Prior to the elevated CPI report, a 0.5% rise in rates had been expected, but, due to the higher CPI numbers, bond markets began pricing in a 0.75% hike leading up to Wednesday’s meeting.

Federal Reserve Chairman Jerome Powell announced their decision on the bigger increase and markets reacted positively. The initial movement upward seemed in response to Chairman Powell’s remarks, where he referenced observing multiple economic gauges that showed a stronger economic position during the current quarter compared to the previous one.

The rally turned out to be short lived, however. Analysts further processed the Fed’s logic, and concern about how aggressive they will likely need to be to control inflation once again weighed on markets. Thursday saw a sharp selloff, and the week ended with oil and energy stock moving significantly lower on the concerns that a slower economy would lead to lower energy consumption.

The seesaw of market sentiment continues, between worrying about inflation and concern over the side effects of the policies aimed at containing it. For their part, the Federal Reserve has consistently expressed confidence in their ability to achieve a ‘soft landing’—cooling inflation without pushing the economy into recession. Of course, they haven’t promised a smooth ride leading up to said landing…

On this first day of summer, Ecclesiastes 3:1 reminds us, “For everything there is a season…” and the current season for markets follows a road that we hope tames inflation, whether achieved by the catching up of supply chains or Federal Reserve policy. Like all seasons do, this one will pass, and we anticipate this next season to be one of strong and robust recovery.

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