Weekly Market Impact

This week Phil spends time covering data about housing prices, consumer debt build up, and why the market is seeming off recently. His point, we are still not out of the woods for market volatility.

This week Phil talks about the impact on inflation, early signs that it may be slowing but more to the point that a cautious approach is still prudent.

This week Phil goes over the surprisingly strong jobs data for July, the improvement in the inflation outlook and price reductions in goods, and the recovery in the stock market for the 3rd quarter.

On this week's podcast, Phil talks about the potential federal reserve interest rate hike and the impact it could have on inflation. He also comments on earning season strength and the potential for a technical recession after second-quarter GDP is released this week.

Phil discussed the implication of the highest inflation since 1981, the strength of the US consumer to survive based on recent retail sales data and the potential for June to be the peak in inflation driving the stock market higher and allowing the Fed to pause after the expected July interest rate hike. 

Recessionary talks have ramped up in the last week, Phil begins by challenging recessionary headlines by diving into the economic data. There is no doubt that we are in the midst of a slower growth regime, however important data, like the manufacturing and services sectors numbers show that both areas of the economy remain in expansionary territory. Similarly, while markets have moved downwards, earnings estimates have moved higher. Another sign that the pillars of the economy and stock market are still holding up. Phil then dives into the possibility of having a bear market (which we are currently in) without a recession and how history has showed us that the year following a bear market typically rewards investors who continued to hold with strong  equity gains. At times economic growth diverges from stock market growth and that is, to an extent, what we are seeing now. 

This week, Phil discusses how the first half of 2022 was a historically bad start for markets. There was simply no place to hide as both stocks and bonds ended the first half in negative territory. While the moves by the federal reserve have not yet slowed down consumer demand the good news is that households still have $18.5 trillion dollars in cash on hand. This means the economy can survive this bout of inflation. The other bright spot is that the job market remains on solid footing. Therefore, any recession, if it is to come should not be prolonged as the underlying fundamentals remain strong. 

Consumers have recently been put under pressure due to inflation which has impacted Americans from the gas pump to mortgage rates. This week Phil discusses consumer expectations for the remainder of the year and why any moderation in rising prices can have a profound impact on the economy and stocks. With recession talks looming, Phil expands on how the current environment is very different from 2008 (the last time we saw a prolonged recessionary situation). Phil also discusses how this supports a positive view on equites moving forward. With stock prices trading near their 10 year historical average price to earnings (P/E) ratio investors can buy stocks at a large discount in an economy that is still fundamentally strong.

The Federal Reserve instituted its first 75 basis point hike in the federal funds rate since 1994, setting the target range at 1.5% to 1.75%. As inflation proved persistent rather than ‘transitory’ in the last year and a half, market participants had broadly accepted the new regime of rising interest rates, but the jump to 75 bps, instead of the 50 bps previously telegraphed, still took investors by surprise. Monetary policy had been historically loose for more than a decade and marked by near-zero interest rates, except for a brief, failed liftoff over 2018, so a single-day shift of that magnitude certainly appeared drastic. While many have lambasted Chairman Powell and the Fed for supporting the economy with looser monetary policy through the pandemic, essentially leaving inflation to simmer on the backburner, Phil doesn’t fault the central bankers too significantly, instead believing the stimulus was necessary and a function of the Fed’s dual mandate, in this case, meeting the objective of supporting employment. Now, eyepopping, headline inflation (8.6% in May) is the problem requiring the most attention – $5/gallon gasoline is worrying consumers and businesses alike, and undoubtedly a major reason for the larger interest rate hike. Listen in to hear the primary factor driving prices higher, where potential early signs of easing inflation are cropping up, and why this is not the same, stagflationary environment seen in the 1970s.