Weekly Market Insights: 07-14-22 Market Buzz Shifts From Inflation to Recession
We have continued to see the markets do what we expected them to do, sell off. Late June appeared to show signs of a bear market rally, but it was short lived and conceded to bearish sentiment heading into the 4th holiday weekend. The low for the S&P 500 set on June 17th might again be tested as fears of a recession are setting in. The transition has swung from fears about inflation to fears about a recession.
Earnings season opens in 10 days and already, we have companies attempting to prepare expectations for lower forecasts and warning that expectations for earnings are too high.
To answer questions about “are we there yet” that some of you might be asking, the answer is no. In our opinion, the data is suggesting that we might be 50% of the way to thru the bear market. Keep in mind that nothing is for sure, especially now with the Fed needing to raise rates again in July and likely again afterwards to squelch the Inflation wildfires. Midterm elections that Wall Street believes will favor the republican party but then again, it is early and the recession commentary that is scaring many investors and consumers alike but not enough to significantly alter their lifestyle…yet.
Inventories are now experiencing the tail end of the supply-chain whiplash. While this phenomenon will likely not be the sole cause of the economic recession, you can imagine what eventually happens when a retailer or wholesaler has an abundance of anything, the price falls. Tyler and I had this conversation about 18 months ago when we were speaking about the signs of our next economic recession being high fuel prices and the whipsaw of supply vs demand on the double ordering, we were seeing from retailers due to Covid-related disruptions.
You cannot “do” anything about the ensuing recession except to stay employed, be wise about where you put your money, cautious about where you spend your discretionary and be patient. There is no avoiding what is coming, only being prepared for it. Keep in mind, that this too will pass and before we know it, we will be once again back on the path to growth and returning to a brighter economic future.
The markets are a 6-9 month forecast on the economy so there will be a window where the markets stop getting worse before the economy begins to get better and that is the moment where we go on the offensive. Until then, we are going through all our accounts and mapping them to where they are going when that window opens.
We got the exit to higher ground correct and now we are preparing to do the same for the re-entry point.
Till we speak again, enjoy the summer!
PS: data below pertains to last week of June.
General Market Commentary
Prospects of cooling inflation powered a rally in stock prices last week despite growing recession concerns.
The Dow Jones Industrial Average gained 5.39%, while the Standard & Poor’s 500 climbed 6.45%. The Nasdaq Composite index rose 7.49% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, edged 0.78% higher.1,2,3
Declining energy and food prices and falling bond yields signaled a potentially improving inflation outlook, buoying investor sentiment. The rally in stocks was most powerful on the first and final trading days of a holiday-shortened week. Stocks turned a bit choppy mid-week as investors digested Fed Chair Jerome Powell’s Senate appearance but resumed their momentum on Thursday and rallied Friday as rate-hike expectations eased.
Though the weekly gain was a welcome respite from the market’s downward trend, declining bond yields and falling food and energy prices can also be interpreted as signs of slowing economic growth, which may represent a headwind for corporate earnings in the months ahead.
Fed Chair Jerome Powell told members of the Senate Finance Committee that the Fed is committed to lowering inflation and moving quickly to do so. He conceded that a recession could result from the Fed’s inflation-fighting efforts and acknowledged that some of the forces driving inflation (e.g., supply chain, war) are out of the Fed’s control.4
Perhaps the most exciting part of his testimony was what he didn’t say, which was a definitive statement on future hikes. Instead, Powell told lawmakers that he “anticipate[s] that ongoing rate increases will be appropriate.” Before his testimony, the Fed published a new research paper that found a greater than 50% chance of recession in the next four quarters.5
This Week: Key Economic Data
Monday: Durable Goods Orders.
Tuesday: Consumer Confidence.
Wednesday: Gross Domestic Product (Third Estimate for Q1).
Thursday: Jobless Claims.
Friday: Institute for Supply Management (ISM) Manufacturing Index.
Source: Econoday, June 24, 2022 The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
This Week: Companies Reporting Earnings
Wednesday: General Mills, Inc. (GIS).
Thursday: Micron Technology, Inc. (MU), Constellation Brands, Inc. (STZ), Walgreens Boots Alliance, Inc. (WBA).
Source: Zacks, June 24, 2022 Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
"You can't win every week."
Get Educated on Education Credits
Two education credits are available to American taxpayers: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The IRS has lots of information about these two credits on their site, but here are some helpful highlights:
•The AOTC is allowed for expenses for course-related books, supplies, and equipment not necessarily paid to the educational institution but needed for attendance.
•There is a four-year limit on claiming the AOTC but no limit on the number of years you can claim the LLC.
•To claim either credit, use Form 8863.
•The AOTC is worth up to $2,500.
•To claim the full credit, your modified adjusted gross income must be $80,000 or less.
*This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov6
Healthy Road trip Snacks
Summer is the season for road trips! Whether taking a short drive from your house or heading off on a cross-country adventure, many families are packing up the car for some time away.
One of the best parts about road trip are the snacks, but they aren’t always the healthiest. Luckily, there are many easy snacks you can prepare for your trip. Skip the chips at the gas station and snack on these healthy road trip snacks instead:
•Apples and peanut butter
•Celery and peanut butter
•Carrots and hummus
•Homemade trail mix with nuts and dried fruit
•Protein and granola bars
•Nuts and seeds
•Dried fruit and veggie chips
Tip adapted from Healthline7
In a drawer are six pairs of red socks, four pairs of white socks and five pairs of blue socks. In total darkness, how many socks would you have to grab to be certain you had a matching pair?
Last week’s riddle: It has 18 legs, is uniformed, walks and runs on grass and artificial turf, and catches flies. What is it? Riddle answer: A baseball team.
Four Peaks, Gila County, Arizona
Footnotes and Sources
1. The Wall Street Journal, June 24, 2022
2. The Wall Street Journal, June 24, 2022
3. The Wall Street Journal, June 24, 2022
4. The Wall Street Journal, June 22, 2022
5. The Wall Street Journal, June 22, 2022
6. IRS.gov, March 20, 2020
7. healthline.com, February 26, 2022
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
Please consult your financial professional for additional information.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG is not affiliated with the named representative, financial professional, Registered Investment Advisor, Broker-Dealer, nor state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Copyright 2022 FMG Suite.