ND&S Weekly Commentary 8.1.22 – Markets Close Out Strong July

August 1, 2022

Amid a barrage of corporate earnings reports, the outcome of the Fed’s July monetary policy meeting and a key economic data report, equity markets closed out July on a strong note marking their first positive month since March.

For the week, the DJIA gained 2.97% while the S&P 500 closed up 4.28%. The tech-heavy Nasdaq jumped higher by 4.72% during a week where several bell-weather technology companies reported. Small company stocks, represented by the Russell 2000, returned 4.35%. International markets also had a positive week with developed markets (MSCI EAFE) and emerging markets (MSCI EM) up 2.11% and 0.42%, respectively. Fixed income, represented by the Bloomberg/Barclays Aggregate, was positive on the week recovering 0.64% during a volatile trading week for bonds. Treasury yields declined across the board as the 2s/10s yield curve saw its most inverted level in 20 years after the Fed’s press release. As a result, the 10 YR US Treasury closed at a yield of 2.67% (down 10 bps from the previous week’s closing yield of ~2.77%). Gold prices closed at $1,753/oz. – up by 2.04% on the week. Oil (WTI) closed at $98.62 per barrel, an increase of 4.1%.

Earnings were mostly the story last week as companies continue to report results that can be described as better than feared. About 279 S&P 500 companies have reported so far, of which 77.8% have topped analyst estimates for profit, according to Refinitive. Last week saw strong results and positive guidance from Amazon, Apple, Merck, Chevron, Exxon, and Microsoft.

In other economic news, it was widely expected and choreographed that the Federal Reserve would increase the Federal Funds rate by 75bps to a range of 2.25%-2.50%. In his post-meeting press conference, Federal Reserve Chairman Jerome Powell explicitly stated that he “does not think the U.S. is currently in a recession”. The Fed has prioritized the fight against inflation and we expect the continuation of rate hikes, albeit at a slower pace through the end of the year.

Real GDP fell 0.9% in 2Q, marking the U.S. economy’s second straight quarter of decline. Two consecutive quarters of negative GDP growth has generally been the rule of thumb in defining a “recession”. However, the National Bureau of Economic Research (NBER), the de-facto scorekeepers of recessions, believes we are not there yet. Their definition is much broader, which encompasses other economic factors such as employment (2Q22 added on average 375k jobs), industrial production (still expanding), household income and trade. Gains in consumer spending and trade marginally offset slowdowns in inventory rebuilding, construction, and capital spending from companies.

Markets have rocketed higher over the past several weeks as the S&P 500 returned 9.1% in July. Things could take a breather here as we move past earnings season and into a seasonally weak period for equity markets. The focus for equity markets will begin shifting towards economic releases and inflation data as earning season begins to move into the rear-view.

“The most important measure of how good a game I played was how much better I’d made my teammates play.” Bill Russell