Week of July 11, 2022

Bill Hastie |

While all three major indices posted gains last week, about 2% for the S&P 500, and with a solid jobs report last Friday, all eyes are on two inflation reports coming out later this week.  Greg Bassuk, chief executive officer at AXS Investments said this well, “While the markets ended in solid green for the week, investors should brace for continued volatility in July, with ongoing uncertainties looming with respect to inflation, Fed policy, recession concerns, the enduring Russia-Ukraine war, all as we also move into corporate earnings season.”

June CPI will be released this Wednesday, and early forecasts are calling for a rise to a new 40-year high of 8.8%.  PPI will be released Thursday.

Last Friday’s jobs report that the economy added 372,000 jobs that returned to work, although below analysts’ expectations, was strong enough for economists to be in broad agreement that continued strength in the labor markets set the stage for another 0.75% interest rate increase by the Federal Reserve when they meet later this month.  Economists, however, are not in agreement regarding the outlook on recession.  The Atlanta Federal Reserve Bank revised downward its estimate for GDP for 2Q2022 to -2.1% by the end of June. With a -1.6% GDP reading for 1Q, the U.S. economy would be in a technical recession (two consecutive quarters with negative GDP).  But Andrew Hunter, senior U.S. economist at Capital Economics sees it differently.  “The strong 372,000 gain in non-farm payrolls in June appears to make a mockery of claims the economy is headed into, let alone already in, a recession.”

History, itself, may be the light at the end of the tunnel for this current bear market (a loss of 20% or more).  Since 1928, there have been 26 bear markets and in every case, the market has fully recovered and gone on to reach new highs.  Some market analysts see the end of the bear market sooner than others.  “We see room for U.S. equities to work higher into year-end ’22, triggered by more resilient earnings than commonly expected, and potential valuation relief as Fed hawkishness in more fully priced in,” said Citi strategist Scott Chronert.