Welcome back to another market update blog! Let’s take a look at what’s occurring in the markets.
Perhaps the most recent Federal Reserve meeting minutes contributed to last week’s broad asset price declines. Notes from July’s Fed meeting showed that Fed officials see “upside risks” to inflation, potentially leading to more rate hikes. However, Fed officials were ultimately divided on the need for more rate hikes at the July 25-26 meeting.
Some officials cited the economic risks of rising rates further, while others continued to prioritize getting inflation under control through further rate hikes.
Jackson Hole Symposium
Markets like clarity and certainty, so eyes will be on the Jackson Hole Symposium this week.
Last year, Federal Reserve Chair Jerome Powel warned at this meeting of economic pain. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said.
U.S. Dollar Rises, Commodities, Cryptocurrencies Decline
This contributed to declines in dollar-denominated assets, including oil, gold, and crypto.
Government Bond Yields Rise
Markets like certainty, and if they can’t have that, they look to bond yields for clues about the direction of the U.S. economy.
Notably, Treasury yields have been rising for the last few weeks, even though the recent prevailing summer narrative was that the end of rate hikes was in sight (which should have led to lower yields).
Perhaps the bond market is trying to tell us something. In case you’re curious, this CNN article briefly but clearly explains the relationship between yields, the stock market, and interest rates.
Retail Sales Unexpectedly Strong
Consumer resilience is nothing short of amazing, as data for July showed a surprise uptick in spending. Can it continue?
Here are July’s highlights:
- Advance retail sales data showed an increase of 0.7% for July (seasonally adjusted) versus estimates of 0.4%.
- There was a 1.9% jump in spending at online retailers.
- Sporting goods and related stores saw an increase of 1.5% for the month.
- Food service and drinking places were up by 1.4%.
- Furniture sales declined by 1.8%.
- Electronics and appliance stores reported a 1.36% decline.
- Gas station sales rose 0.4% despite a rise in gas pump prices.
Americans have been continuing to spend impressively. However, credit card debt continues to rise, and savings have been drying up.
Perhaps the talk in recent months of inflation beginning to recede has motivated consumers to spend, but let’s remember that credit card bills always come due.
The narrative could shift to a potentially “higher for longer” interest rate hike campaign, given a divided Fed and rising bond yields. Markets will seek clarity this week out of Jackson Hole.
Retail sales provided a bright spot in sentiment last week in an otherwise risk-averse market that saw higher bond yields and a higher U.S. dollar.
Perhaps the short-term negative sentiment is overdone, perhaps it is not. It ultimately doesn’t matter for long-term investors, although some may use lower equity prices to increase asset allocation, should risk tolerance and investment objectives warrant such a move.
As always, if you have any questions or concerns, please feel free to call our office at 706-534-2351. Our team is here as a resource for you.
The Trademark Capital® Team
This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Trademark Capital’s investment strategies are built using quantitative, proprietary algorithms that are designed to identify and react to changing market conditions. However, investors should be aware that no investment strategy or risk management technique can guarantee returns or eliminate risk in any given market environment. As with all investments, Trademark Capital Management’s investment strategies are subject to risk and may lose money. The investment strategies presented are not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Due to our active risk management, our managed portfolios may underperform during bull markets. Past performance is no guarantee of future results.