The inflation and interest rate battle rages on after more upbeat headlines over the past week. Another active week of earnings and economic data helped to guide the markets to more solid footing while providing more relief from the years’ selloff. Prior to Friday’s jobs report for July, we had begun to read and hear about a growing call for the Federal Reserve to begin slowing down the pace of interest rate increases. We even read about a few economists calling for the Fed to take a significant pause all together. That seems to have changed abruptly given the robust data released on Friday. “The U.S. economy added many more jobs than expected last month, and there was an appetite for workers particularly in the service sector, which has been grappling with labor shortages. The leisure and hospitality sector saw the most jobs growth, with 96,000 payrolls added in July, led by strong expansion in food and drinking places, according to the U.S. Bureau of Labor Statistics”. The unemployment rate also ticked slightly lower to 3.5% versus the 3.6% that was expected and tied for the lowest reading since 1969. It seems that as the year rolls on we continue to see long standing historical records broken and new trends emerging.
With the unemployment rate low and the jobs market remaining strong, the prevailing recessionary questions remain; are we or aren’t we in one today? It is clear based on the latest data that the Fed will remain on the path of raising interest rates to bring prices and inflation down. What is also coming into play very quickly are the mid-term elections. The President is already sitting in a precarious place with a low approval rating, which will only complicate things further. We simply won’t be able to avoid the “politics” of it all. Those on the right will undoubtedly use high inflation as ammunition while the left will use continued low unemployment and economic strength as it’s foundation for re-election purposes. Both sides can make valid points on all fronts, but the reality is we (you and I) will be stuck in the middle trying to sift through all the noise again. The joy of it all!
So, what are we watching in the weeks ahead? We are in the heart of the vacation season with back to school starting in parts of the country and beginning in earnest nationally in a few weeks. Typically, this means lower trading volumes and a little less “worry” as we take time away from the daily grind. With that being said, there are always events and broader actions taking place. We already mentioned the upcoming election cycle as a major headline piece. Quantitative tightening and increasing interest rates by the Federal Reserve is ongoing. Tempers in China and Taiwan have increased putting the global stage on notice yet again. The transition from the Covid economy to a more normal, supply-chain improved economy continues. Oil and gasoline prices are dropping but something that we will still watch closely. Overall, our financial markets seemed to have stabilized and found more solid footing this week which is reassuring. We are far from out of the woods but comforting to see nonetheless and always welcome.
Housekeeping note: Our annual SHRED event will take place on October 8th at 9am. Make sure to mark your calendars!
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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.