By Kevin Theissen
After a down first half of the year in markets, July changed direction, as markets tried to reestablish its foundation. In July, the S&P 500 was up 9.1%, Nasdaq up 12.3%, and the Dow up 6.7%. These returns marked the strongest monthly gains 2020.
The economic data continued its path with high inflation and low consumer sentiment while struggling with high employment. The Consumer Price Index increased 9.1% in June, the largest 12-month increase since December 1981, up from 8.6% in May, the second-largest increase since 1981. The core personal consumption expenditures (PCE) price index, the Fed’s preferred gauge for inflation, which excludes volatile food and energy prices, increased 4.8% in June 2022 from a year ago.
Employee pay and benefits rose and employment remained strong in July, continuing to put pressure on inflation.
The employment-cost index, a measure of wages and benefits for civilian workers, increased a seasonally adjusted 1.3% in Q2, according to the Labor Department, the fastest increase since the measurement was first recorded in 2001. Business and government employers spent 5.1% more on worker costs in the second quarter compared with the same period a year earlier, the fastest annual pace on record, according to Wall Street Journal.
Demand for workers remains strong as the U.S. economy added 372,000 jobs in June and the unemployment rate was 3.6% for the fourth straight month. Somewhat surprisingly, July 2022 consumer sentiment is the second lowest on record, which is an unprecedented value especially in this strong labor market.
July market performance was also boosted by stronger than expected earnings, with nearly 75% of the S&P 500 companies that posted results beating expectations for per-share earnings by almost 5%, according to the Wall Street Journal. Markets rallied after the Fed raised its benchmark federal funds rate by 75 basis points to a range between 2.25% and 2.5%, the fourth increase this year. 2.25%-2.5% is the range the Fed considers neutral, where interest rates neither stimulate nor restrict economic activity.
Even with a strong July, markets will continue to deal with mixed economic indicators. For the remainder of the year, it will be interesting to see what direction inflation, employment, and consumer sentiment will take.
Kevin Theissen is the owner and financial advisor of HWC Financial in Ludlow.