The end of July finished quite strong with a great deal of optimism. Optimism in the Fed’s ability to handle inflation, optimism in the long-term picture for technology stocks, and optimism in the equity markets to rally in the face of continued headwinds.
I remain somewhat skeptical of this rally. Not in its short-term strength and its broad participation , but rather because this sharp rally has made this July rally look a lot like the March rally.
As you can see from the chart below, the equity markets made a new low (S&P 500) of 4170.70 in early March. It then proceeded to really almost 12% and actually slightly eclipsed the previous high from February (see upper yellow box). But that’s where that rally stalled out and proceeded to decline 16% into the lows in early May.
Now the S&P 500 has rallied 12% again off the late June low of 3666.77 and is approaching the high from the beginning of June (lower yellow box). The question is: does this rally get above the June high (4150 – 4200 on S&P 500) AND stay there or does it reach that area and roll over as it did in March?
The answer should become clear in the next couple of weeks.
Based on the strength of the current rally we did add a bit more to equities over the last 2 weeks but we did not jump in with both feet as this rally still has to prove its staying power.
On the economic front, the US economy is still solid but with signs of slowing. The initial estimate of GDP (gross domestic product) for the 2nd quarter of 2022 came in negative 0.9% after declining 1.6% in the 1st quarter. You may hear on the news that 2 consecutive quarters of negative GDP is a recession but I don’t agree. Recessions generally include increases in job layoffs and unemployment. That’s just not happening right now. I am more in the camp of a growth slowdown than an outright recession. The economy does have some serious headwinds – specifically inflation and rising interest rates. But at the moment employment remains positive and consumer and corporate balance sheets are in good shape. Europe, on the other hand, appears to be headed to recession as the war in Ukraine and Russia using oil & gas as a weapon against those countries supporting Ukraine.
Please let me know if you have any questions on this report or the financial markets in general.
As always, I appreciate you continued confidence in us.
August 2022 Calendar of Events (comments and suggestions always welcome)
August is National Immunization Awareness Month – We’ve had Covid for over 2 years and now we have Monkeypox to deal with!
August 8th My birthday! It is also International Cat Day. Meow to all the cat lovers out there
August 13th National Left-handers day – props to all the lefties out there dealing with our right-handed society
August 26th National Dog Day – a day to remind everyone to consider adopting. As proud dog owners of a rescue, Elle and I celebrate this day with Coco
August 26th Women’s Equality Day – as the son of a single mom and the father of 3 wonderful daughters and 2 amazing granddaughters, I support improving quality for women in all areas.
Please stay safe and well.
Sources: Fidelity Investments, Sierra Alpha Research, StockCharts.com
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