The ongoing “Relief Rally” hit a few speed bumps during the second half of August as positive economic news clashed with anxiety over the pace of continuing Federal Reserve (Fed) interest rate hikes.
Earnings season wrapped up with surprisingly positive results overall. Of note were reports from both Walmart and Home Depot that showed consumer spending remains strong.1 Markets enjoyed solid gains on the optimism that the economy remains in good shape.
That optimism seeped into expectations of slowing future interest rate hikes by the Fed. Wall Street interpreted recent comments by the Fed to suggest the aggressive nature of these rate increases was waning. Those expectations now appear to be misplaced.
Last Monday, fears resurfaced of more aggressive Fed action and markets all dropped, led by tech stocks.2 Last Friday, Fed Chairman, Jerome Powell, delivered his much anticipated speech at the central bank’s annual Jackson Hole Symposium. It contained some of the strongest language yet, saying the central bank would be willing to take “forceful and rapid” steps to address inflation even if it means potentially higher unemployment rates and a recession.
While July’s inflation figures showed a drop to 6.3% (down from June’s reading of 6.8%) this is still significantly higher than the Fed’s goal of 2%. Powell said that the drop from last month is “far short” of what the Fed needs to see before it can be confident that inflation is dropping.3 This aggressive stance sent markets into a freefall and they all ended the day with losses over 3%.
Markets continued to seesaw the first half of this week as investors wrestled with this mixed data. As we’ve addressed many times before, we urge you to avoid getting caught up in the passion of this short-term volatility. Maintain a long-term view and disciplined investment strategy – and please lean on us if you are feeling anxiety.
Wrapping up the latter half of August, all major markets posted losses. As of
August 31st, the Dow fell by 2,402 points (7.08%), the S&P 500 dropped 342 points (7.96%) and the NASDAQ lost 1,312 points (9.99%).
1www.cnbc.com, “Dow closes 200 points higher on Tuesday for fifth day of gains, buoyed by Walmart and Home depot”, August 16, 2022
2www.cnbc.com, “Dow slumps 600 points Monday to wrap up worst day since June as summer rally fades”, August 22, 2022
3www.thehill.com, “Dow drops 1,000 points following Powell speech at Jackson Hole” , August 26, 2022