Markets “In a Nutshell” for August 1, 2022
Investment Week at a Glance
Stocks finished higher for the week. The Dow Jones Industrial Average rose 3.00%, the S&P 500 was up 4.30%, and the NASDAQ rose 4.70%. Foreign stocks (MSCI EAFE) were also up, rising 0.90%. Bond prices were up for the week, with the 10-year U.S. Treasury ending the week at 2.66%. (Data source: Wall Street Journal)
Negative GDP Growth for 2nd Straight Quarter
The first reading of GDP for the 2nd quarter came in lower than expectations at -0.9% quarter over quarter. This now makes it 2 quarters in a row with negative GDP growth which widely meets the technical definition of a recession. However, the official record-keeper of recessions in the United States is the NBER (National Bureau of Economic Research) and they have not labeled the current contraction in the economy a recession yet. The NBER may need to see weaker labor numbers to officially categorize this as a recession. We may however continue to see negative quarters of GDP growth going forward as we have not completely accounted for all the Fed rate hikes yet and more are expected going forward which will strain the economy.
Fed Raises Rates
The Fed once again raised interest rates by 0.75% bringing rates up to 2.50%. Expectations are that by the end of the year rates will rise to 3.50% only leaving 1.00% left for the Fed to raise in the 3 meetings that remain for the year. Between another quarter of negative GDP growth and another rise in rates from the Fed, you’d expect it to be a rough week for markets but once again we saw markets rally as the Dow is now down less than 10% of the year and the S&P 500 is down roughly 13%. Markets were able to rally as earnings for many companies came in better than expected and although the Fed raised rates the 10-year yield fell under 2.7% due to another negative quarter of GDP growth.
When was the last time we saw 2 quarters in a row of negative GDP growth? (Scroll Down for Answer)
Have a Great Week!
3) 2020, In 2020 we saw GDP contract for two consecutive quarters due to Covid-19 and related lockdowns. Before 2020, the last time we saw 2 consecutive quarters of negative GDP growth was in 2008.