Market Week: August 29, 2022

The week in review

  • Mfg./Services PMI: 51.3/44.1
  • 2Q22 real GDP: -0.60% q/q SAAR (2nd est.)
  • Headline/Core PCE: 6.3%/4.6% y/y
  • Consumer sentiment: 58.2 vs. 55.1 expected

The week ahead

  • Unemployment rate and JOLTS
  • ISM manufacturing index

Thought of the week
On Friday, Federal Reserve Chairman Jerome Powell reiterated that inflation remains too high and that the central bank is determined to bring it back down to its 2% target, even if they must risk weakening the economy in the process. Chair Powell specifically noted that “reducing inflation will require a sustained period of below trend growth.” This tough talk comes just as we have begun to see an improvement on the inflation front. The July CPI report showed headline CPI remaining unchanged m/m and a notable deceleration in y/y growth. Looking ahead to the August report, declining gasoline prices and lower airline fares should provide additional relief, but the rest of 2022 could be mixed with natural gas prices rising and higher wages putting a floor underneath inflation. Nonetheless, we expect inflation will resume its decline in 2023, as weakening demand and improving supply chains ease price pressures. For the Fed, the key question is whether the current path to 2% inflation is quick enough; as we illustrate in this week’s chart, the path to normalcy will be slow and could vary greatly depending on the economic backdrop. Even in a scenario in which headline CPI grows at a consistent 0.2% m/m rate, the y/y growth figure would take a full 12 months to come down to just above 2%. But what does all this mean for portfolios? If the Fed chooses to prioritize controlling inflation over economic growth, this would favor value over growth and international equities over U.S. equities. On the other hand, a more moderate pace of tightening could be a boost for U.S. equities and credit. In either situation, however, we do expect economic growth to slow; slower growth implies lower rates, which makes us increasingly comfortable in adding back some duration in portfolios.

Click here to download a PDF of this report.

Securities offered through LPL Financial, Member FINRA/SIPC. E2E Financial is another business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance LLC, a registered investment advisor. Independent Advisor Alliance is a separate entity from LPL Financial.

The information contained in this e-mail message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. Investing involves risk including the possible loss of principal.

The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Bloomberg U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or U.S. federal income taxes.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Market Index captures broad US equity coverage. The index includes 3,204 constituents across large, mid, small and micro capitalizations, about 99% of the US equity universe. Indexes are unmanaged and cannot be invested in directly.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Don’t miss the next one. Subscribe for early access.

ARE YOU READY TO TAKE YOUR PRACTICE TO THE NEXT LEVEL?