Stocks turned in a mixed performance last week as investors struggled with headlines suggesting that the Fed was unlikely to soon ease up on its current monetary tightening policy.
The Standard & Poor’s 500 rose 0.36%, while the Dow Jones Industrial Average slipped 0.13%. The Nasdaq Composite index picked up 2.15% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 0.23%. 1,2,3
Ahead of Friday’s employment report, stocks were generally higher, highlighted by a Wednesday rally triggered by fresh earnings surprises and a better-than-expected economic report. The rally was especially notable because it occurred when multiple Fed officials said that the fight against inflation hadn’t ended, perhaps throwing cold water on the idea that the Fed might pivot due to weakening economic activity and the prospect of cooling inflation.
Aside from this single day of enthusiasm, markets were a bit jittery, especially as investors monitored Speaker of the House Pelosi’s visit to Taiwan. A robust employment report on Friday reinforced the idea that the Fed would likely stay the course on monetary tightening, resulting in a mixed market for the week.
The U.S economy added 528,000 jobs in July, doubling the consensus expectation of 258,000. The unemployment rate ticked lower, falling from 3.6% to 3.5%. Coincident with this job creation was strong wage growth, as average hourly earnings rose 0.5% in July and 5.2% from a year ago. 4
Leisure and hospitality, professional and business services, and healthcare lead the way in reported job gains, as seen in most sectors of the economy. Even sectors such as construction, particularly vulnerable to rising interest rates, saw job gains. The labor force participation rate moved slightly lower, slipping to 62.1%--its lowest level this year. 5
My Take: Sometimes the Bond Market is Wrong
For the last month or so, mortgage rates have been trending down.
Why? Because the bond market got a bit ahead of itself and started to assume that the Fed would soon stop raising interest rates soon. Some media prognosticators even proclaimed the Fed would start cutting next year.
As I discussed last week, we are not in a recession. Another fact I could have mentioned then was that first quarter growth numbers are often the lowest of the year simply due to the end of holiday spending. Nonetheless, some bond market participants thought (still think probably) we are in a recession and that led them to drive rates down.
These employment figures should convince enough of them that there are still a lot of rate increases to come before growth is slowed enough to slow inflation. I am not changing my investments in response to this prediction, but I do suspect that mortgage rates and other interest rates will resume their upward march in the short run, which will likely cause a pause in the stock market's recovery.
This Week: Key Economic Data
Wednesday: Consumer Price Index (CPI). Institute for Supply Management (ISM) Services Index. Factory Orders.
Thursday: Jobless Claims. Producer Price Index (PPI).
Friday: Consumer Sentiment.
Source: Econoday, August 5, 2022
This Week: Companies Reporting Earnings
Monday: Dominion Energy, Inc. (D), Tyson Foods, Inc. (TSN).
Tuesday: Emerson Electric Co. (EMR).
Wednesday: The Walt Disney Company (DIS).
Thursday: Illumina, Inc. (ILMN).
Source: Zacks, August 5, 2022
"People always call it luck when you've acted more sensibly than they have."
– Anne Tyler
The IRS May Send You One of Two Notices If Your Filed Returns Don’t Match Their Records
Have you wondered what happens if the information on your tax return doesn’t match the IRS records? The IRS mails out two notices, CP2100 and CP2100A, to banks, credit unions, businesses, and payers that may have made a mistake on their return.
The IRS mails these notices out twice a year, in September/October and April of the following year. Payers may receive a notice if their return is missing a Taxpayer Identification number, has an incorrect name, or both. The notices also tell payers that they are responsible for backup withholding.
* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov6
This Cognitive Behavioral Exercise Can Help Quiet Your Negative Self-Talk
We all have that little negative voice in our head, and one of the ways to combat it is to change the way you think about situations. Stressful things will always happen, but the goal is to change your feelings about those stressful situations.
To practice this exercise, separate a piece of paper into three columns. One is for your negative thought, one is for the cognitive distortion at play, and one is for your rational response (thinking logically about how you’re feeling). Here’s an example:
Negative thought: I did horrible on my presentation today and am getting fired.
These cognitive exercises take a lot of practice but can help silence your inner critic.
Tip adapted from Healthline7
Just two U.S. states have capital cities whose names include the full name of the state. What states are they?
Last week’s riddle: A rain gauge collects rainfall each day of a wet week beginning on Monday. Every day, the amount of rain in the gauge doubles. At Sunday’s end, the rain gauge is completely filled. So on which day is it half-filled? Riddle answer: The rain gauge is half-full on Saturday and the amount of rain in the gauge doubles on Sunday so it becomes completely filled.
Bernina Express, Landwasser Viaduct, Graubünden, Switzerland
Footnotes and Sources
2. The Wall Street Journal, August 5, 2022
3. The Wall Street Journal, August 5, 2022
4. CNBC, August 5, 2022
5. CNBC, August 5, 2022
6. IRS.gov, May 2, 2022
7. Healthline.com, May 26, 2022
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Weekly Market Insights: Mixed Week For Markets; Jobs On The Rise
August 08, 2022