July was yet another month of roller coaster ups and downs, marked by continued consumer concerns about supply chain issues and higher costs for goods and services. The weather wreaked havoc in many parts of the country, as torrential rains and record flooding devastated Kentucky, leaving more than two dozen dead. Folks in St. Louis dealt with flash floods from more than nine inches of rain in 24 hours (shattering a century-old mark of 7.02 inches.). Californians could have used some of that rain – they continue to battle the largest wildfires they’ve seen this year.
Data released in late July indicated more trouble in the housing market. The latest monthly homebuilder sentiment survey showed the single largest monthly drop in its 37-year history (except for April 2020). Housing starts declined for the second month, falling 2.0% and surprising economists who had expected an increase.
But the month brought plenty of good news, too. Corporations told a more upbeat, optimistic story about business conditions, with many companies reporting solid second-quarter earnings in July. Through July 22, FactSet reported that 68% of S&P 500 companies reported positive earnings surprises, and 65% reported a positive revenue surprise.
Another optimistic tidbit is that the U.S. dollar and the euro reached parity for the first time in almost 20 years. The dollar strengthened against the euro partly because of differenced in monetary policy. The U.S. has been raising rates to slow inflation, While the European Central Bank (ECB) has been hesitant to do so, for fear of slowing economic growth. In late July, however, ECB raised short-term rates for the first time in over a decade, so euro/dollar parity may be short-lived.
Maybe the nest news of all? Undaunted by another Federal Reserve rate hike and news of a contracting economy, the stock market rallied in late July on better-than-expected corporate earnings. The Dow Jones Industrial Average increased 2.97%, while the Standard & Poor’s 500 picked up 4.26%. The Nasdaq Composite index gained 4.70% for the week. Fed Chair Jerome Powell indicated that it might become appropriate to slow the pace of future rate hikes, and he did not believe the economy was entering into a recession.
And, despite news of the second consecutive quarter of negative economic growth (meeting the technical definition of a recession), stocks added gains as fresh earnings continued to comfort, if not impress, investors. Unlike past recessions, hiring has been strong all year, with the unemployment rate near historic lows. The economic slowdown was attributable primarily to decreases in inventories, a deceleration in the housing market, and lower government spending. Consumer spending increased a tepid one percent, well below the inflation rate during the same period.
With half the year behind us, here are a few tips to help make the rest of the year as smooth as possible:
- Deflate Inflation – Travel-related costs have skyrocketed, causing many to delay or cancel vacation plans. But are you overreacting to current headlines? Let’s talk if you’re wavering on a scheduled trip.
- Embrace Uncertainty – If you’ve delayed a major purchase lately, you’re not alone. Economic uncertainty has caused many of us to rethink our expenditures. When your net worth declines, the “wealth effect” tells consumers to rein in spending. But our portfolio strategy takes into account periods of market volatility.
- Practice Patience – The need to take action can push even the most seasoned investors into questionable territory. Instead, try to take a long view of the markets. Remaining patient and taking a break from market watching may help you weather the storm.
Let us know if you ever want to chat about your future goals or current economic conditions. We’re always ready to help.