Week Ending August 5, 2022
Until yesterday, Biden and his crew of Dem’s have offered very little as far as ‘progress’ to economic policy during his tenure as president. When he first arrived in office he pursed an economic strategy to save us from a ‘depression’ which has shifted to ‘save us from inflation’, and so, they have delivered the ‘Inflation Reduction Act’. The act’s biggest focus is tax reform, climate initiatives (YAY!) and prescription drugs. Here is a quick summary:
- Largest climate initiative bill EVER – More than $300 billion would be invested in energy and climate reform with $80 billion going to EVs. Giving consumers up to $7,500 to by an EV, up to $2k for a heat pump, 30% off home rooftop solar, $840 for electric cooktop, and up to $9k for electric panel/home insulation.
- Lowering Cost of Prescription Drugs – not all, but some – with the most impactful legislation coming with a cap on insulin at $35/month for Medicare beneficiaries and a $2,000 cap on annual prescription costs (effective in 2025).
- Tax Reform – 15% minimum tax for corporations making $1 billion or more in profit, who also bringing in more than $300 billion in gross revenue. 1% excise tax on corporate stock buybacks
For more, HERE is link to NPR’s review of the legislation.
Below is your Weekly Market & Economic Update.
Interested in learning more? Schedule a call with me HERE.
Warmly,
Mark S Sauer
Market Update
Global Equities, Fixed Income & Commodities
Global Equities: Markets were relatively flat last week following a week of massive earnings and the Fed meeting. Investors looking for an indication of what comes next. The S&P 500 ended the week up 0.4%, while the Nasdaq outperformed with a 2.2% weekly gain, and the Dow Jones Industrial Average posted a slight weekly loss of -0.1%. Investors were feeling a bit more “risk-on” until the Friday jobs report, which was stronger than expected – and raised the likelihood that the Fed will keep the hawkish pressure on rates come September. Developed International stocks were down -1.1% and Emerging Markets managed just a 0.3% gain as the continued strength of the US dollar limited the appeal of foreign investments.
Economic Update
Jobs, Mortgage Rates & Earnings
June Jobs Surge: The July jobs report showed monthly growth of 528,000 jobs, more than double the 250,000 expected by economists. Unemployment also unexpectedly ticked down to 3.5%, from 3.6% in June. Average hourly earnings were up 0.5% month-on-month and 5.2% year-on-year, also higher than anticipated. The robust job and wage growth puts more inflationary pressure on the economy, and bolstered expectations that the Fed may implement a third consecutive 0.75% rate hike in September.
Charts of the Week
Probability of a Deep Recession
Our first chart of the week – a FRED data chart by the St. Louis Fed – displays, month after month, the estimated probabilities that the U.S. economy is in a deep recession. These estimates are calculated from a set of economic statistics discussed in this article. The FRED graph also conveniently displays shaded bars when actual recessions occurred, as determined by the NBER business cycle dating committee. And the match up is astonishingly good! (For a deeper analysis, see this article.)
So, are we in a recession or not? Well, things are quite expense – but you can judge for yourself; but at the time of this writing, the June 2022 data do not seem to indicate a recession.
Emerging Markets
Our next chart is iShares MSCI Emerging Markets ETF (ticker EEM), plotted against its 50 (blue line) and 200-day (red line) moving averages. While domestic indices have managed to get upside the 50-day resistance and are flirting with a retest of the 200-day level, Emerging Markets have been trading sideways since mid-June and remain down over 17% year-to-date. The biggest headwind Emerging Markets currently face is the strength of the US Dollar, which makes foreign investments less attractive. High inflation and supply chain issues are also limiting upside; however, Emerging Markets stocks are incredibly cheap at just 11 times forward earnings and could rip higher quickly if the US dollar weakens measurably.
