The strength of the United States economy continues to surprise.
If you have ever been camping, you may have banked your campfire by covering the hot coals with ash. It’s a process that keeps the coals burning low so the fire can be easily rekindled. The U.S. Federal Reserve has been trying to bank the fire of U.S. economic growth – and it’s proving to be challenging.
There are signs that U.S. economic activity is burning less brightly. For example, economic growth declined during the last two quarters, the U.S. housing market appears to be cooling, and consumer sentiment is low, reported Colby Smith of Financial Times. However, last week’s data suggested some parts of the economy are still ablaze.
- Unemployment fell to 3.5 percent, tying a five-decade low. The U.S. labor market was on fire in July, adding more than twice the number of jobs economists had expected, reported Jeffry Bartash of MarketWatch. The primary driver behind the gains was women returning to work, reported Catarina Saraiva and Maria Paula Mijares Torres of Bloomberg.
The jobs numbers added fuel to the debate about whether the U.S. is in a recession. “The labor market in the first seven months of 2022 looks nothing like the labor market in most recessions. Friday’s jobs report was unambiguous. Far from losing steam, the labor market recovery has been firing on all cylinders,” wrote labor economist Julia Pollak in a Barron’s opinion piece.
- Corporate profits grew in the second quarter. So far, 87 percent of the companies in the Standard & Poor’s 500 Index have reported on second quarter earnings. While the pace of growth is slower than the five-year average, three-out-of-four companies have reported higher than expected profits, reported John Butters of FactSet.
“The blended…earnings growth rate for the second quarter is 6.7% today,” reported FactSet. “Six of the 11 sectors are reporting year-over-year earnings growth, led by the Energy, Industrials, and Materials sectors. On the other hand, five sectors are reporting a year-over-year decline in earnings, led by the Financials, Consumer Discretionary, and Communication Services sectors.”
- The services sector continued to recover. Economic activity in the services sector grew for the 26th month in a row. It was up 1.4 percentage points in July, according to the latest Services ISM® Report On Business®. “Growth in the U.S. services sector unexpectedly strengthened to a three-month high in July on firmer business activity and orders, easing concerns of a broader economic slowdown,” reported Jordan Yadoo of Bloomberg.
Last week, major U.S. stock indices delivered mixed performance, while U.S. Treasury yields rose, reported Jack Denton of Barron’s.
|Data as of 8/5/22||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor’s 500 Index||0.4%||-13.0%||-6.4%||13.4%||10.8%||11.5%|
|Vanguard Total Intl Index (Foreign Stocks)||-0.5||-15.7||-16.6||5.1||2.5||5.2|
|Total Bond Market (U.S. Dollar Bonds)||-1.0||-9.1||-10.3||-1.0||1.0||1.5|
|Gold (per ounce)||1.1||-2.6||-1.5||6.6||7.1||1.0|
|Bloomberg Commodity Index||-3.3||18.8||23.7||15.4||7.1||-1.9|
S&P 500, Vanguard Total International Stock Index, Vanguard Total Bond Market Index, Gold, and Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized. Sources: Yahoo! Finance; MarketWatch; morningstar.com; djindexes.com; London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Weekly Focus – Think About It
“So long as you have food in your mouth, you have solved all questions for the time being.”
—Franz Kafka, novelist
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* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
https://www.bloomberg.com/news/articles/2022-08-05/women-drive-job-gains-as-us-labor-market-surges-back-in-july (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-08-22_Bloomberg_Women%20Drive%20Job%20Gains%20as%20US%20Labor%20Market%20Surges%20Back%20in%20July_3.pdf)
https://www.barrons.com/articles/recession-strong-labor-market-jobs-51659707296?mod=hp_LEAD_1_B_4 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-08-22_Barrons_This%20Labor%20Market%20Looks%20Nothing%20Like%20Most%20Recessions_4.pdf)
https://www.bloomberg.com/news/articles/2022-08-03/u-s-services-gauge-unexpectedly-advances-to-a-three-month-high (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-08-22_Bloomberg_US%20Services%20Gauge%20Unexpectedly%20Climbs%20to%20a%20Three-Month%20High_7.pdf)
https://www.barrons.com/articles/stock-market-today-51659691152?mod=hp_LEAD_2 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/08-08-22_Barrons_Dow%20Wavered%20After%20Jobs%20Report_8.pdf)