July brought a pleasant surprise to investors: markets went up. The S&P 500 posted its strongest month since November 2020, climbing 9.1% (WSJ, July 29). The Dow rose 6.7% and the Nasdaq 12.0%. Outside the U.S. the MSCI EAFE returned a more modest 2.1%.

The topic of the day remained inflation and the Federal Reserve’s reaction to it. The good news is that the month saw a general decline in the prices of many commodities, from wheat, corn, and lumber to oil and natural gas (WSJ, July 31). The less good news was that direct measures of price inflation remained elevated, as evidenced by the personal consumption expenditures index (PCE), up 6.8% in June (CNBC, July 29) the biggest jump since 1982, and the consumer price index (CPI) which rose 9.1% (WSJ, July 13).

In the face of all this, the Fed followed through on another big increase in fed funds rate, lifting the benchmark 75 basis points higher to a range of 2.25%-2.5% (Bloomberg, July 27). Chairman Powell suggested that a third rise of similar magnitude was possible down the road, while insisting in his post-announcement remarks that the economy was not in recession.

The latter claim was belied by the dictionary definition of a “recession”—two quarters in a row of negative growth. Under those terms a -0.9% contraction in Q2 GDP, added to Q1’s -1.6% decline, would seem to qualify. But as a Wall Street Journal story (WSJ, July 4) concluded, “If the U.S. is in a recession, it’s a very strange one.” One contraindicator: the jobless rate, which fell from 4.0% in December to 3.6% in June. As the Journal noted, a rise in unemployment has been a hallmark of nearly every recession, with a median increase of 3.5% for the 12 post-World War II recessions.

There was a certain “bad news is good news” aspect to market behavior throughout all this. Weakening housing demand, a relatively small increase in personal income, and a decline in the personal savings rate among other factors suggested that higher interest rates were beginning to impact economic activity (Bloomberg, July 29). This, the markets seemed to think, might lead the Fed to moderate its interest rate policy going forward. This shifting view of future central bank activity was taken by some as a potentially positive development for stocks.

More tangibly, there was the ongoing release of corporate earnings reports. While much of the news was less than stellar, the surprises were generally to the upside, as noted by FactSet. The research firm found that with 56% of the S&P 500 reporting, 73% had a positive earnings surprise. The blended average earnings growth rate was 6.0% (FactSet, July 29).


No shortage of other news

There were of course other developments in the month, with varying degree of significance for investors. The dollar reached parity with the Euro for the first time in almost 20 years (Reuters, July 13) as war, inflation, and energy concerns continued to roil Europe. The yield on the 10-year treasury fell for three straight weeks in July ending the month at 2.64% (WSJ, July 29).

Global M&A activity slowed, IPOs mostly dried up, and some leveraged loans made by banks started to look a little shaky (WSJ, July 3). Exchange traded funds (ETFs) were another matter as the industry closed out the first half of the year with 206 launches, up from 196 in the same period in 2021 (ETF.com, July 1). Bond ETF sponsors were particularly active, with fixed income accounting for 13% of launches this year compared to 8.0% in 2021.

And speaking of jobs, 372,000 were added in June, topping estimates; average hourly earnings rose 5.1% (WSJ, July 8). July jobless claims saw a slight decline to 256,000 in the month’s last week while holding near the eight-month high (Bloomberg, July 28). There was good news for income-oriented investors as dividend payouts hit a record $140.6 billion in the most recent quarter, up from $123.4 billion in the same period last year (WSJ, July 12).

Finally, in what was at least a temporarily hopeful sign for the global food supply, the first grain ship to depart Ukraine since the start of the Russian invasion left Odesa on August 1, bound for Lebanon (NY Times, August 1).

“Good news…” and “hopeful signs…”: phrases it’s nice to include in a look back such as this one, and words we hope to use again as we recap August in a few weeks.



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The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance.

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Core Personal Expenditures Price Index (CPE) is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends.

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