2022 | August 29

UPCOMING FIRM EVENTS

THE MARKETS

Stocks Retreat

The major U.S. stock indexes started and ended the week with steep daily declines, sending the S&P 500, the NASDAQ, and the Dow down around 4% overall. It was the second weekly setback in a row for the S&P 500, interrupting the positive momentum that had lifted the index more than 17% from mid-June to mid-August. The S&P 500 closed on Friday at 4,057.7 for a loss of 4.0% on the week.

U.S. stock indexes fell more than 3% on Friday after U.S. Federal Reserve Chair Jerome Powell said the Fed remains committed to extending its policy of aggressively raising interest rates, even at the risk of fueling a potential recession. Speaking in Jackson Hole, Wyoming, Powell said recent data showing a cooling of inflation “falls far short” of what the Fed “will need to see before we are confident that inflation is moving down.”

While both equity styles posted negative results for the week, growth stocks trailed their value counterparts by a wide margin. An index of U.S. growth stocks fell by about 4.6% while a value index retreated 3.2%, extending the value style’s year-to-date performance leadership.

A monthly inflation metric that the U.S. Federal Reserve uses as its preferred gauge of price trends confirmed that inflation has recently decelerated. Consumer prices rose 6.3% in July from a year earlier, down from 6.8% in June, as measured by the personal consumption expenditures price index. Excluding volatile food and gas, prices rose 4.6%. 

U.S. government bond yields edged higher after Fed Chair Powell said he expects to extend the policy of aggressively lifting interest rates. The yield of the 10-year U.S. Treasury bond climbed to around 3.07% in morning trading before settling to around 3.04% in the afternoon. It ended the previous week at 2.98%. 

Although U.S. GDP has contracted for two quarters in a row, an updated estimate shows that the rate of decline was more modest than initially estimated. Thursday’s government revision put the contraction at an annual 0.6% rate in the second quarter, compared with an initial estimate of 0.9% that was released in late July.  

The year-to-date strengthening of the U.S. dollar lifted its value slightly above that of the euro on Tuesday, and the dollar remained above the parity level for nearly all of the rest of the week. On Friday afternoon, a single euro was trading around $0.997. The last time the two currencies reached parity for a sustained period was in late 2002.   

A monthly U.S. labor market update due out on Friday will show whether July’s upward momentum in jobs growth extended into August, despite high inflation. In July, the economy generated 528,000 new jobs—the biggest monthly gain in five months—while the unemployment rate slipped to 3.5%.  

Source: John Hancock Investment Management

Student Loan Forgiveness

Of Lesser-Known Athletes and Economic Statistics

You may never have heard of him, but Joss Naylor might be one of the greatest endurance athletes of all time. He’s a sheep farmer and a fell runner whose nickname is the Bionic Shepherd. “Fell” is British for hill or mountain. At the age of 50, he climbed 214 peaks, covering 520 miles of mountainous terrain, in seven days, one hour and 25 minutes. 

Mildred Ella “Babe” Didrikson Zaharias was one of the first female athletes to gain recognition. Babe won accolades in golf, where she won 10 LPGA championships; basketball, where she led the Amateur Athletic Union Golden Cyclones to a championship; and track and field, where she earned two gold medals in the 1932 Summer Olympics. She also pitched four innings during three Major League spring training exhibition games in the 1930s.

Last week, you may have heard about a relatively unknown economic statistic that rarely receives recognition. It’s called Gross Domestic Income or GDI. Analysts and economists have been wondering why GDI is outperforming Gross Domestic Product, or GDP, which is a better-known economic indicator.

In theory, the performance of GDP and GDI should be about the same, according to Reade Pickert of Bloomberg, which may explain why GDI is often overlooked. Recently, however, the performance gap between the two has been significant.

• GDP measures the total value of all of the goods and services produced by the economy. Last week, the Bureau of Economic Analysis (BEA) reported that, after inflation, GDP declined 0.6 percent annualized from April to June, after declining 1.9 percent from January to March.

• GDI measures the total value of all of the income generated from producing goods and services. It includes compensation and company profits. After inflation, GDI was up 1.4 percent annualized from April to June, after rising 1.8 percent from January to March.

“GDP figures suggest an abrupt slowdown in economic momentum in the first half of the year…The back-to-back negative quarters, a common rule of thumb for recessions, have not only fueled fears of an imminent downturn but also led some to believe it was already under way…GDI, however, points to a more gradual cooling. It paints a picture of an economy supported by a robust labor market and resilient consumer spending, though one that’s starting to feel the pinch of the worst inflation in a generation,” reported Bloomberg.

The BEA will take another look and offer final revisions to GDP and GDI in September.