July '22 Newsletter

In July, the Standard & Poor's 500 index rose 9.11%, while the Nasdaq Composite picked up 12.35%. Many of you are likely watching the markets intently, wondering if this is a bear-market rally or the start of the bottoming process. As you know, it’s impossible to predict and there’s plenty of data to justify either the bull or bear case. While we certainly don’t have a crystal ball that tells us what’s going to happen next, we wanted to share some of our thoughts with you.

Indicators we are continuing to watch…

The Fed raised short-term rates by 0.75%, bringing its target range from 2.25% to 2.50%. Increased rates hit consumers with higher costs for mortgages, auto loans, and credit cards. The Fed’s goal is to slow demand in an attempt to bring down consumer prices.

We recently saw that GDP shrank at a 0.9% annual rate this past quarter, on top of a 1.6% contraction in the first three months of the year. It was the second-consecutive quarter of negative economic growth, meeting the technical definition of a recession. Unlike past recessions, hiring has been strong all year, with the unemployment rate near historic lows.

Indicators that are potentially trending in the right direction…

Despite the negative headlines, there are some positive signs out there.

The Fed is making up for its late start in combating inflation – and that’s good. Markets rose after the Fed’s move and Chairman Powell’s comments. In fact, some sophisticated investors using advanced trading tools are betting that the Fed will be cutting rates by June 2023.

The price of oil has come down recently, which has been reflected in lower prices at the pump. Cheaper gas will benefit consumers and businesses and may be reflected in the next month’s inflation reading from the Consumer Price Index.

Employment remains strong, with unemployment holding steady at 3.6% for the past four months. Employers continue to hire, and job openings still far outpace the number of people looking for work.

Overall stock market valuation also merits some consideration. According to a July 29 report by FactSet, the forward 12-month P/E ratio for the S&P 500 is 17.1. That's below the 5-year average of 18.6 but above the 10-year average of 17.0. FactSet explained the forward 12-month P/E ratio of 15.8 was recorded at the end of the second quarter (June 30).

Staying the course …

As I’ve been saying all year, I encourage you to continue following the financial strategy we’ve established. I’m here to help you make sense of all this news, so please give me a call if you have any questions. We are in this together and will get through it as a team.