Jul 31, 2023

Defying Expectations

Weekly Market Commentary

Gross Domestic Product (GDP) is a very broad measure of the value of goods and services in the economy over a certain period.

Last week, the U.S. Bureau of Economic Analysis reported that GDP rose at an annual pace of 2.4% in Q2, accelerating from Q1’s 2.0% and topping the forecast of 2.0% (Wall Street Journal).

Sometimes, we analyze the quarterly change and find that one-off factors aided or detracted from the headline number. This time, however, that was not the case.

Although consumer spending slowed a bit, strong spending and investment by businesses more than made up for any slack. It’s also worth noting that the many recession predictions made since the start of the year continue to miss the mark.

Meanwhile, the Federal Reserve hiked its key rate by 0.25 percentage points to 5.25 – 5.50%, the highest in 22 years.

The fast pace of rate increases last year has been replaced by a much more subdued posture, which has helped fuel the recent stock market advance.

The Federal Reserve didn’t shut the door on another rate hike (or hikes) this year, but it didn’t provide much detail on the timing or certainty of an increase. Much will depend on the economy and inflation. And that’s a bit of an unknown, even for the best economic forecaster.

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An Annual Ritual at the Gas Pump

You’re right if you have this nagging feeling that gas prices rise in the spring. As the graphic illustrates, on average prices rise through Memorial Day, plateau over the summer, and slip in the fall. This year is no exception, as prices echo the seasonal pattern.

Rate Cuts Still on the Table, Timing Less Certain

We often discuss the Federal Reserve and interest rates because both greatly impact investors. For starters, changes in interest rates have a significant impact on stock prices and income earned on savings. Sharply higher rates in 2022 pushed equities into a bear market.

Just Do It

That ubiquitous phrase from one of America’s most extensive athletic footwear and apparel makers seems to have been adopted by most American shoppers. The U.S. Census Bureau reported last week that retail sales jumped 0.7% in March, following a strong 0.9% rise in February.

The Road to Lower Inflation Takes a Detour

The rate of inflation is accelerating. That’s not how we hoped to start this week’s Insights. Take a moment and review Figure 1. The 4-month moving average has broken out of its long-term downward trend (red-dashed lines). On a monthly basis, prices bottomed in June and began to gradually turn higher. The upward trajectory picked up in January.

No Matter How You Slice It and Dice It…

The latest employment numbers from the U.S. Bureau of Labor Statistics (BLS) point to a robust job market. On Friday, the U.S. BLS reported that nonfarm payrolls rose 303,000 in March, well ahead of expectations. It’s not simply March; growth has been above 250,000 for four months running.