Markets “In a Nutshell” for July 11, 2022
Investment Week at a Glance
Stocks finished higher for the week. The Dow Jones Industrial Average rose 0.80%, the S&P 500 was up 1.90%, and the NASDAQ rose 4.60%. Foreign stocks (MSCI EAFE) were up, rising 0.50%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 3.08%. (Data source: Wall Street Journal)
Recession Fears Continue
Despite an increase of 372,000 jobs and the unemployment rate staying steady at 3.6%, recession worries are still at the front of everyone’s mind. Many people believe a recession is imminent in the near future, but the strong jobs data is something that we have never seen in a recession before. If job data starts to become weaker, it most likely will mean we are already in a recession. Although recessions are never a good thing, they always happen in the business cycle and on average only last 10 months with the longest being in 2007 which lasted 18 months. If we do see a recession occur this year, many believe it will not be that bad as the jobs market is still very strong and the Fed has been able to raise rates to try to combat inflation which gives them some ammunition to fight a recession.
Interest Rates and the Fed
Interest rates have fallen recently from their highs but rebounded slightly last week. The spread between the 2, 5, 10 & 30-year interest rates has also tightened in the past few months and we have seen inversions all over the yield curve. When we see an inversion in the 2 & 10-year yields, many believe this to be a recession warning. It is rare for interest rates to be nearly the same on all 4 of the yields that are closely tracked. This is due to recession worries, inflation continuing, and the Fed increasing interest rates rapidly which has made bonds volatile this year when typically, bonds are seen as a safe place to be when equities are struggling. As we are about two weeks away from the next Fed meetings, expect markets to try and predict how much the Fed will raise rates and how that will affect equities and the bond market going forward.
What was the shortest recession we have seen since WWII? (Scroll Down for Answer)
Have a Great Week!
4. 2020. Due to the Covid pandemic, the US economy was only in a recession for 2 months due to the pandemic. We also saw the stock market crash and rebound all the way within a few weeks. Although this was the shortest recession, it was also the worst recession when looking at GDP as we saw more than a 10% decline.