In Markets "In a Nutshell"

Markets “In a Nutshell” for August 15, 2022

Investment Week at a Glance

Stocks finished higher for the week.  The Dow Jones Industrial Average rose 2.90%, the S&P 500 was up 3.30%, and the NASDAQ rose 3.10%. Foreign stocks (MSCI EAFE) were also up, rising 2.40%.  Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 2.85%.  (Data source: Wall Street Journal)

Inflation Begins to Slow Down

The CPI (consumer price index) data for July was released last week and for the first time in a few months, we saw a decline in inflation from 9.1% to 8.5%. This month’s reading also was less than the expected 8.7% which markets took kindly to and rallied on this new inflation data. While 8.5% inflation is not good for the economy, the decline gives hope to the market that the worst is over when it comes to inflation. If the data continues to show inflation is slowing down, the Fed will not have to be as aggressive in raising interest rates which would be a positive for equities moving forward. More good news on the inflation front was we saw easing supply chains around the world which caused the PPI (producer price index) to also come in lower than expected. After months of bad inflation data, this new data gives reason for markets to rally as we have now hopefully seen peak inflation.

Fed Reaction

With better inflation data the Fed is now expected to only raise rates by 0.50% instead of 0.75% in their next meeting. Markets are now expecting the fed funds rate to be 3.50%-3.75% by the end of the year with the Fed pausing hikes in 2023. This would bring interest rates higher and slow down demand and consumption by the consumer putting a strain on the economy as expected. Market volatility is expected to continue as we work through these interest rate hikes through the end of the year. Market volatility does not always mean markets moving lower as we have seen markets have a sharp decline to begin the year but have rallied almost 17% off their lows in just the past 2 months.



What is the average 12 month return following midterm elections since 1962? (Scroll Down for Answer)

  1.    -5.2%
  2.    0.8%
  3.    7.5%
  4.    16.3%





















Answer below.



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4)      16.3%, Markets tend to rally strong after midterm elections compared to the 12 months before midterm elections where since 1962 the market has an average return of only 0.3% leading up to midterms.