The Markets and Economy
After working both sides of the fence the Dow closed the day lower by 46 points ending at 32,798. Trading volume was lower but IBD has now lifted its market rating to “market in confirmed uptrend” after last week’s 2.97% rally. Another positive indicator is that junk bond prices are on the upswing. The price of gasoline has started to pull back over the past month and with the rate hike last week many market pundits are thinking the red hot growth in the inflation rate could begin to ease as the fall draws near. Thus the reason for some optimism.
The Federal Reserve last week upped interest rates another 75 “bips” and the Fed rate is now 2.25% to 2.5%. While many investors feel that inflation will ease heading into the fall, hedge fund biggie Bill Ackman at Pershing Square begs to differ and said in an interview that in order to get to a neutral interest rate (defined as matching the inflation rate) position the Fed will need to push rates up to the 4% range. This kind of jives with what Fidelity is indicating because they are currently forecasting that while inflation will start to ease this fall it will remain at the 4% to 5% level for the next several years. Citigroup economist Nate “Silky” Sheets also noted that economic activity is slowing but the data is very clear that inflationary pressures are persisting which means we could be in for an extended period of rising interest rates and sluggish economy.
As July came to a close the US economy contracted for the second consecutive quarter signaling that we are in a recession. Each downturn is different however and what makes this one unique is the low unemployment rate and robust job market which is not typical of a recession. While consumer spending, housing and business investment have declined, retail inventories are being negatively affected by the Joe Sixpack’s of the world having to spend so much more on food and gas that they have no money left over for underwear and socks. Walmart and several other retailers have recently indicated this trend. Despite the slowing economy, the labor market remains tight and Microsoft President Brad Smith gave some insight into this situation when he said the number of people entering the workforce has declined 60% since 2016 and that all tech companies are having to deal with this problem. Brad did not specify why this was occurring other than to say that it could be a combination of factors like increased gubment handouts, child care costs or pandemic related issues that are keeping new workers from entering the job market. On top of this, older workers have been retiring in droves to get away from the rat race and mosey around the country in an RV. All of these factors are helping create a tight labor market even during an economic slowdown.
Items of Interest
Nothing of interest to report. The scouts returned from Philmont where they had a great time. The Venture Crew won a permit for a hike into the Enchantment Lakes later this month plus we have an Eagle court of Honor on August 14th for a kid named Beau. I told Beau that he is famous because they named the “Beau and Arrow”, the “Beau tie” and the “Beauline knot” after him! I don’t think he believes me.
The Markets and Economy