The financial markets had plenty of news/data/information to digest last week. Highlighting the week:
- The U.S. Bureau of Economic Analysis reported Gross Domestic Product declined last quarter, its second quarter in a row of contraction, which by some definitions is a recession.
- The Federal Reserve hiked interest rates 3/4 percent, in-line with market estimates.
- Earnings Season continues to come in better-than-feared, with positive reactions to reports by two of the biggest stocks, Apple and Amazon.com, setting the positive tone last week.
Put it all together and stocks posted a strong rally last week – the Dow Jones Industrial Average gained 3% to 32,845 – the NASDAQ Composite jumped 4.7% to 12,391 – while the Standard & Poor’s 500 Index increased 4.3% to 4,130. Perhaps the biggest factor behind last week’s rally was commentary from Fed Chair Powell, saying “as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation.” Many took this comment as dovish, hoping the Fed will become less aggressive in raising rates.
Along that line of thought, also spurring last week’s rally, was investor sentiment that peak inflation is behind us, and belief any recession will likely be mild. Of course, the market can and does change its mind very quickly. The Bears (negative on the market) believe that last week was just a bear market rally, which are historically common. They point out the inflation problem is not solved, the Fed is still in the process of raising rates, supply chain issues remain concerning, and the geopolitical backdrop is tumultuous. These conflicting views/interpretations (especially on inflation and the future path of rate hikes) remind us of the old market adage – That’s what makes a market! Being a long-term investor means looking beyond short-term fluctuations and cycles!
Looking to the week ahead, we’ll continue to get a steady flow of earnings reports, along with the July Jobs Report. Notable companies scheduled to report include Advanced Micro Devices, Airbnb, Caterpillar, Booking Holdings, Kellogg, PayPal, Amgen, Eli Lilly, Moderna, and Starbucks. The jobs report is released Friday, expectations are for the economy to have added 250,000 jobs and for the unemployment rate to come in unchanged at 3.6 percent.
All the best – Southport Station Financial Management, LLC