We finally had some interesting talking points this week after what has felt like a relatively quiet month or two for our financial markets. The Fitch Ratings agency downgraded the debt of the U.S. on Wednesday (think of this like a “credit” score we all carry), from AAA status to AA+. This sent ripples of uncertainty through the market for the first time in several weeks. The downgrade was driven largely by the large deficits that have been created over the last several years via the ongoing budget issues. Richard Francis, Fitch’s co-head of the Americas sovereign ratings said on Wednesday, “In addition to the Jan. 6, 2021 insurrection, the rating agency has noted a “constant brinkmanship” surrounding the debt ceiling among both Republicans and Democrats. That has hindered the U.S. government from coming up with meaningful solutions to deal with growing fiscal issues, particularly around entitlement programs such as Social Security and Medicare.” The reactions to this news have been varied, but many high-profile economists seem to be taking this news in stride given the resiliency of our nation’s economy and consumer spending. Personally, I don’t think we can fully dismiss the comments made by Francis as we continue to feel the impact of a divisive and polarized government.
An important piece of economic news that came in today was the July jobs report. The unemployment rate dropped a notch to 3.5% in July from 3.6% in June, further illustrating that a robust employment market remains intact. A key measure that helps the fight against inflation is the hourly earnings metric. For July, hourly earnings rose by .4%, good for an annual pace of 4.4% and above expectations. Nonfarm payrolls expanded by 187,000 for July, slightly below the Dow Jones estimate of 200,000. Overall, the low unemployment rate and rising wages are positive signs for the economy, but slowing job growth is something we will keep an eye on. With the Federal Reserve on hiatus until September, the evidence is building that another rate hike may not be needed in the fall after all. I know they, the Fed, will want to keep the door open just in case, but I believe the time has finally come to close this chapter so we can move forward to a “soft” landing.
Another hot topic of the week was corporate earnings. Many of the large bellwether companies reported quarterly results that showed some slowdowns in certain areas of the economy are occurring. Amazon showed solid growth in its cloud computing business, while Apple, on the other hand, reported lower quarterly earnings on a year over year basis. I don’t believe we need to be overly concerned with seeing a more mixed bag than usual. I think it’s simply the result of what has already been set in motion with the underlying economic policies being put in place over the last year and a half. Earnings will continue over the next few weeks, so we will be keeping an eye on any significant changes on that front.
As August rolls on and we prepare for the much-celebrated return to school, I hope you can relax and enjoy some quality down time. I know we can all use some fun in the sun!
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.