CRA Financial: Recap and the Week Ahead... Inflation and Recession fears

Last week’s Market Recap:

The S&P 500 was up 1.98% for the week. Year-to-date the index is down -17.52%.
NASDAQ closed the week up 4.58% and is down -25.33% YTD.
10-Year Treasury Rate increased, ending the week at 3.09% from 2.88% the prior week.
- Fed Funds Target rate is 1.75%

The week ahead, 7/11:

Inflation Data! CPI on Wednesday
More Inflation Data! PPI on Thursday
Earnings Season begins with a lot of attention on the largest banks

Quick Comments:

Last week’s June jobs report was strong. The unemployment rate remains low, which is inflationary; however, wage growth continues to cool modestly. So does this mean inflation is peaking?

“High Inflation” and “Is a recession coming” are dominating investment headlines, but the consistent strength in the U.S. labor market along with wage growth slowing should be viewed as a positive! This suggests the next economic downturn could be a relatively mild one for American workers. For now, the Fed should take the jobs report as a bright spot and remain focused on the inflation half of its dual mandate.

This week’s CPI and PPI reports will be extremely important to watch. Most economists are expecting CPI to increase to 8.7% in June. If the CPI and PPI data continues to run hot as expected, it should support another 75 bps hike this month.

What history tells us about the markets and recessions?…

Markets don’t always decline in recessions. The average decline for the S&P 500 during the past nine recessions is 1.5% while the median decline is 3.4%. However, as the chart below from Invesco shows, the index was positive during four of the past nine recessions, including the double-dip recessions of the early 1980s in which Paul Volcker and the US Federal Reserve (Fed) were breaking inflation through sharply rising interest rates.

The chart below may be surprising to many. The key word below is “DURING.” The biggest market declines tend to occur “BEFORE” a recession, not “DURING.”

Best,

CRA Investment Committee

Matt Reynolds CPA, CFP®

Tom Reynolds, CPA

Robert T. Martin, CFA, CFP®

Gordon Shearer Jr., CFP®

Jeff Hilliard, CFP®, CRPC®

Joe McCaffrey, CFP®

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