With the inflation outlook more positive, the big question in financial markets is whether the Fed will continue to raise interest rates 0.75% at its September 20-21 meetings or raise by a lower amount. Fed Chair Powell will speak to this on Friday, August 26, from Jackson Hole.
- Minutes from the Fed’s July FOMC meeting released last week reflect a cautious tone that higher rates may be having a negative impact on economic growth, hence a likely slowing of the pace of rate increases.
- GDP outlook for Q3 is 2.5% annualized. With May retail sales data having an upward revision, the Q2 GDP first estimate is like to be revised as well with this Friday’s update.
- The global supply chain continues to improve, which gives the Fed opportunity to see inflation abating with less severe pressure on reducing demand.
- Personal Consumption Expenditures inflation index for July also reports on Friday and is expected to be unchanged, further suggesting that inflation likely has peaked and will subside as energy, housing and food price declines work through the pricing process.
Uncertainty led to modest declines in the Nasdaq (-2%) and S&P 500 (-1%) last week.
- With the Nasdaq up +20% from its mid-June lows, technically it has begun a new bull market, but it seems premature to think that we are “out of the woods” with respect to volatility, inflation and interest rates and the global economic and political environment.
- Positive nominal revenue growth, continuing better than expected earnings growth, positive market technicals and large amounts of cash on the sidelines all are supporting a rebounding from the mid-June lows.
- So, the big question is whether the June global equity lows were the bottoms and the 10+% to 20+% rallies since mid-June are sustainable. The best answer is that bottoming is a process and the prudent approach is to stick with our investment plans.
- China’s cut in 1-year and 5-year interest rates this morning reflects its concern that its post-Omicron economic rebound is waning .How this plays out will also have an important impact in U.S. equity markets.
Disclosure: Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC. Brokerage and Investment advisory Services are offered under the Keel Point brand. Investment Advisory services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.