July 2022 Economic Update

The markets made a nice recovery during the month as seen below.  Because our investment process is built to avoid large drops, as previously stated, we started the month with many retirement accounts holding about 80% cash and continued this allocation through the month (stay tuned for the August update as we decreased cash on August 1st.)

The overall economic numbers continue to be strong.  Yes, there are a few ups and down but overall, the economy as a whole is doing well considering there are some major problems such as inflation.  Based on the historical definition, we are “possibly” in a recession (see below for a more detailed explanation), however, I do have an opinion on this…

Most recessions have a higher supply than a demand issue.  Our problem currently is far too much demand for the limited, broken, supply.

On the personal front, we went on two camping trips in July and we were able to have a real campfire for both trips.

Legislation: A major bill just passed in Congress called the Inflation Reduction Act.  We will provide more details in the August update.

July Stock Market Summary

Dow                   6.7%                S&P 400 (Mid Cap)                         10.7%
NASDAQ         12.3%              Russell 2000 (Small Cap)             10.4%
S&P 500           9.1%  

For the month of July, all the major indexes performed nicely with the best month of the year for the U.S. market. 

Canada and the UK finished up 4.4% and 3.5%, respectively, while France rose 8.9% and Germany added 5.5%.  China was the lone major market to finish the month down, giving up -4.3%.  As grouped by Morgan Stanley Capital International, developed markets surged 5.2% but emerging markets ended the month down  0.3%. 

Gold and Silver gave up -1.4% and -0.8% in July, respectively.  West Texas Intermediate declined -6.8%, while Brent crude finished up 0.7%.  Copper finished the month down -3.7%.

All data from Yahoo Finance, 8/1/2022

DOMESTIC ECONOMIC HEALTH

The number of Americans filing for initial unemployment benefits slowed last week after hitting an eight-month high, according to the Labor Department. 

Jobless claims have been ticking higher since hitting a low of 166,000 in March.  Still, readings under 300,000 are still considered a robust labor market. 

Meanwhile, the number of people already collecting benefits fell by 25,000 to 1.36 million. 

Home prices pulled back in May from their record high set in April, according to the latest report from S&P Case-Shiller.  Tampa, Miami, and Dallas led the cities with the highest annual gains.  Minneapolis, Chicago, and Washington D.C. were the lowest. 

The Federal Reserve hiked interest rates again this week as it strives to reign in rampant inflation.  The Fed lifted its key rate by 0.75 percentage points to 2.5%, a move that was widely expected.  The increase was its fourth this year in its aggressive bid to cool the hottest inflation in four decades. 

The Fed signaled more rate hikes are coming even as the economy shows clear signs of slowing, however, Fed Chairman Powell the Fed would make that decision based on the incoming economic data.

The U.S. economy shrank at an annual 0.9% pace in the second quarter, marking its second quarterly decline in a row.  The reading was a wide miss from consensus forecasts.  Economists had expected a 0.3% increase.  The back-to-back declines in GDP were the first since the 2007-2009 Great Recession.  A drop in business investment and a smaller increase in inventories largely accounted for the negative GDP print in the second quarter. 

While two consecutive quarters of declining GDP has been commonly viewed as the official definition of a recession, a group of prominent economists responsible for declaring official recessions announced that the old rule of thumb does not always apply. 

Consumer spending - the main engine of the U.S. economy - rose at a 1% annual rate. 

Inflation surged again last month, remaining at a 40-year high, a key price gauge showed.  The Personal Consumption Expenditures (PCE) Index, rumored to be the Fed’s preferred measure of inflation, rose a sharp 1% in June, led by higher fuel prices.  The increase exceeded forecasts of a 0.9% advance.  A narrower measure of inflation that omits food and energy costs, “core PCE”, rose by 0.6%.

Orders for goods expected to last at least three years, so-called ‘durable goods’, increased 1.9% last month, but beneath the headline number, the report wasn’t as optimistic.  Orders for new cars and trucks rose 1.5% in June, while orders for fighter jets and military planes jumped 81%, lifting the overall number.  New orders outside the transportation segment rose a smaller 0.3%.

Continued Claims

Chart from the St. Louis Federal Reserve Website

Cheap Dogs:

It’s not just housing—the average transaction price of new vehicles sold in June hit a new stratospheric record high of $45,844, up 14% from a year ago.  As automakers continue to struggle with shortages of key parts and semiconductors, in particular, inventories remain near historic lows.  Dealers handled the shortages by charging more than list price and filling their lots with only the most expensive vehicles loaded with as many options as possible—and that’s how the ATP (average transaction price) jumped to a new record.  Since June 2019, the ATP has spiked by 36%, or by over ten grand per vehicle! (Chart by wolfstreet.com, data by JD Power)

Summary

Our investment and financial planning advice is based on a repeatable process. We attempt to take out the emotional element in the decision-making process. The results will not be perfect 100% of the time but we believe it gives us and you the best chance for success to meet your goals.

It goes without saying that things can change quickly, and we will be ready to make the changes as necessary.  This is also why having a great foundation is important as ever and why I believe so much in this idea.  Good spending habits, emergency funds, healthy lifestyle are a few

Please reach out with any questions, introductions, or set up a time to do something fun.

Shane Callahan may be reached at 720-696-0265 or Shane@EnduranceWealthPlanning.com
EnduranceWealthPlanning.com

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The short and long-term health of our economy is positive.  Value has increased from 1 to 2

History of the “Market” and where we are today

Past Market Performance is no guarantee of future investment performance or success