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August Economic Update

Market Summary

The stock market shrugged off economic data to retrace higher in July for a much-needed rebound from the recent lows. The Dow Jones Industrial Average gained 6.73%, while the S&P 500 rose 9.11%, and the tech-heavy Nasdaq 100 Composite led the pack picking up 12.35%. (1)

Economic Developments Last Month

With stocks have been under pressure all year from rising inflation and slowing economic growth, there were not many signs in July that suggested either inflation had cooled or that the economy was rebounding. The month of July culminated with corporate earnings from the largest technology companies, a Fed interest rate decision, and the release of an initial estimate for second quarter GDP.

During the course of this year, inflation and rising interest rates have been center stage for the pressures weighing on the market. On July 13th, the latest CPI numbers were released showing inflation continuing to rise with prices increasing 9.1% year-over-year, which is the highest inflation increase since November 1981. Near the end of last month, another inflation metric known as Personal Consumption Expenditures (PCE) was released, which hit a new high for the year rising 6.8%. (2,3)

In light of this data, on July 27th, the Federal Reserve announced another 0.75% interest rate increase, the second in a row after raising the same amount in June. Fed Chair Jerome Powell also announced they would no longer be giving forward guidance for future interest rate hikes and will be completely data-dependent moving forward. Given the rate of change with inflation has continued to remain persistently high, the Federal Reserve has signaled another aggressive interest rate increase is likely in September (no meetings are scheduled for August). (4)

Looking Ahead…

Last month’s rebound in the stock market was a welcomed relief for investors. However, it is important to maintain perspective. Inflation has remained persistently high, and the Federal Reserve is committed to raising interest rates into the foreseeable future to dampen growth and demand.

Additionally, the U.S. GDP report was released last month which showed a second consecutive contraction in growth, which officially places the U.S. into a “technical” recession. As mentioned in last month’s newsletter, this is a “hindsight” indicator since the contraction in growth has already occurred. We could