Much has been said about the current state of the markets, and for good reason. Up till the end of June, 2022 has been the worst start to the year for the markets since 1970. (Feel free to use that depressing fact at your next dinner party).
But simply put: July was a fantastic month for the markets.
July brought us a big rally with the S&P 500 up 9%, the biggest monthly gain since Nov. 2020. (Probably a happier fact to use at a dinner party if you ever want to get invited back).
You may be scratching your head on why the sudden rebound on Wall Street when we continue to see negative economic data. After all, the Fed raised interest rates another aggressive 0.75% as it battles a stubborn inflation number. And 2nd quarter GDP declined -0.9% after 1st quarter’s -1.6%, marking what common consensus defines as a “technical recession”.
We think there was some significant positive news beneath the headlines, however. For starters, have you noticed gas prices the last time you filled up? While $3.89 is still higher than we’d like, it’s much better than the $5.20 we were seeing this time a month ago. Commodity prices also declined substantially in July. And some retailers are beginning to discount goods to move excess inventory. If those trends continue, it could confirm the thought that inflation may have finally peaked. We’re also in earnings season right now with approximately 68% of the S&P 500 companies that have reported so far were beating expectations; many reporting that while things are certainly slowing, it’s not as bad as initially feared.
The markets are often like a pendulum, constantly swinging from one extreme to the other in search of the perfect balance. While June swung too negative to over-sold territory, our thoughts are July has swung to the opposite extreme and is looking over-bought. We’re still very much in the camp of further volatility is on the horizon in the near term as we still face plenty of headwinds. We think international markets will struggle more so we’re maintaining our focus on America. Bonds are looking more attractive than they have in years with yields up significantly from this time a year ago. We think high quality stocks with a tilt towards dividends is a prudent approach.
Lastly, remember that the average non-recessionary bear market has an average decline of -24%. (We were down -23% through the June low). The average recessionary bear market is down -33%. But more importantly, for long-term investors with a timeline greater than 4 years, the average bull market is up +150%. That’s still a good trade to us.
Current Brokered CD Rates:
As we write this, China is dominating today’s news so here’s your Useless Fact of the Month:
Microsoft, Apple & Google combined are worth more than the entire Chinese stock market in 2022.
Please reach out if you have any questions on your portfolio or would like a review.
As always, thank you for being a client.
- - Sean & John