Let me bullet point some of the headlines we saw in July before going into the commentary.
- Well it’s official…we’ve had two consecutive quarters of GDP contraction, which puts us in a technical recession as noted here. That doesn’t mean it’s entirely bad news as noted in last week’s run higher in the S&P 500. It seems that the markets have already built in this news on the downside. Let’s all hope that’s the case.
- The S&P 500 had its best month of returns since November 2020 as noted here. The index was up 9.1%! It is great to see a big jump like this finally.
- The Federal Reserve is still trying to get a handle on inflation and raised rates by 0.75% as noted here. With the Consumer Price Index increase of 9.1% from a year ago in June, the Fed has now raised rates by 0.75% two consecutive meetings.
Now that we know all this, what’s next?
It’s still much too early to tell if the Fed is on the right path to stem inflation. Even if they are on the correct path, the stock market volatility tends to lean on the side of corporate profits. We are about to get a number of earnings reports this week. This will give us a good look at how companies are managing the current economic environment. Even with high inflation and recession talk, that doesn’t necessarily translate to a down market. Remember, the stock market tries to forecast expectations anywhere from the next quarter to the next year. If it thinks that we are in a good position over the next 12 months, it will tend to go up no matter our current environment. Here is an excellent summary of how the economy and the stock market differ at this link.
I’m still positive when I look at where we are sitting. We have all weathered these down markets more times than we care to think about. As the old adage goes, “the best defense is a good offense”. It’s important to make sure we set up our risk tolerance before these contractions happen. Once this market finally comes back (hopefully sooner than later), let’s make sure our accounts are exactly how we want them to be.
All the best,
Larry Mroczkowski
President and Wealth Advisor