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Investment Update

Updated September 9, 2022

Our investment team remains committed to sharing regular updates and market insights to keep you informed. Please look for our next update on October 7.

Summer Rally Hits a Speed Bump

After rallying approximately 17 percent from mid-June through mid-August, the S&P 500 lost 9 percent from August 18 to Wednesday. Much of the move was due to a very hawkish tone from Federal Reserve officials coming out of the Jackson Hole Economic Symposium in late August, and the subsequent increase in interest rates.

During the summer rally, a narrative developed that the Fed would continue to increase rates through the end of the year, but would then pivot and begin to lower rates in early 2023 as inflation slowed. Following Jackson Hole, Fed Chairman Jerome Powell delivered a concise but clear message that the Fed must continue raising interest rates and hold them at a higher level until it is confident inflation is under control, even if unemployment rises. Other Fed officials soon followed up, delivering the same message. This did much to dispel the notion that the Fed would quickly reverse course on rates.

The S&P 500 is now down nearly 15 percent for the year. The Dow Jones Industrial Average is lower by 11.5 percent and the tech-heavy NASDAQ is down almost 23 percent year-to-date. Unless markets improve over the last four months of the year, this will be the worst annual returns for major stock indexes since the 2008 financial crisis. The bond market continues to have its worst year in modern history. The benchmark Bloomberg Barclays U.S. Aggregate Bond Index is down more than 11 percent year-to-date.

Better News on Inflation Continues

We are continuing to get better news on the inflation front. Following last month’s lower-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) data, the Fed’s preferred inflation yard stick, the Personal Consumption Expenditure (PCE) Deflator was down six-tenths of a percent to 6.3 percent in July. A broad swath of other inflation indicators, such as shipping rates, effective rents, Average Hourly Earnings and used car prices, are also showing improvement. Oil and gas prices continue to fall dramatically. Oil is down more than 30 percent from the June highs while the commodity price of gas is more than 45 percent lower since early June. The retail price of gas should continue to drop over the next several weeks.

Labor Market Remains Strong

Last Friday’s August jobs report contained good news on a number of fronts. The economy added a healthy 308,000 new jobs. While the unemployment rate increased two-tenths of a percent to 3.7 percent, this was primarily due to an increase in the labor market participation rate. More people entering the labor force will help the current labor shortage. Finally, Average Hourly Earnings fell from 0.47 percent to 0.3 percent month-over-month, which is good news on the inflation front.

The Institute for Supply-Side Manager’s (ISM) Manufacturing Index was flat for August at 52.8, while the ISM Services Index increased three-tenths to 56.9. ISM data is a good indicator of the overall economy. Readings above 50 reflect expansion while readings below 50 indicate contraction. The economy has slowed following the post-pandemic surge, yet the data does not reflect that we are currently in a recession.

What Should I Be Doing With My Investments?

We encourage you to pay attention to the latest developments, but not to lose sight of your long-term investment strategy. Reach out to our investment team to discuss your options and reaffirm your timeline and goals. Call our investment team at (518) 415-4401.