Market Monitor: July 15, 2022, Update

Headlines and Highlights
  • Inflation tops 9%, the most since 1981: Higher gasoline, shelter and food costs in June drove the Consumer Price Index to a new 41-year high of 9.1%, putting additional pressure on both the U.S. economy and the Federal Reserve in its inflation fight. The headline inflation gauge rose 1.3% from May, the biggest one-month increase since 2005. Much of the gain came from an 11% jump in gasoline prices prior to a more recent decline this month. Core inflation, which excludes the more volatile food and energy categories, eased slightly to a year-over-year rate of 5.9%, down from 6.0% in May and 6.5% in March.
  • Consumers step up spending pace: S. retail sales recovered last month following a rare decline, rising 1.0% from May in a reflection of both consumers’ resilience and higher prices. The increased spending comes despite broad anxiety about inflation. The University of Michigan’s index of consumer sentiment inched slightly higher in July after sinking to its lowest level on record in June.
  • Market volatility returns: U.S. and international stocks shed more than 3% in a five-day losing streak before recovering Friday as investors worried about higher inflation and prospects for additional tightening by central banks. The volatility followed a brief respite from this year’s lengthy sell-off and erased the S&P 500’s modest gain to begin July. Bond markets reflected recession jitters, swinging in both directions. Prices have risen slightly in July.
Chart of Interest

Selected Market Returns

Holding firm: U.S. retail sales resumed increasing in June, underscoring consumers’ strength.

Sources: Federal Reserve Bank of St. Louis, Altair Advisers

Our Views
  • Inflation has remained elevated for longer than anticipated and will take at least into next year to come down to a more historically normal level. However, some categories that were behind inflation’s sharp rise have shown signs of abating, including gasoline and other commodities such as corn, cocoa and industrial metals. This furthers our belief that it will gradually moderate over the remainder of 2022.
  • The Federal Reserve is all but certain to maintain its aggressive pace of interest-rate increases following the higher-than-expected CPI reading, given its recent shift to prioritizing reducing inflation over supporting the economy. Markets already have fully priced in the Fed’s anticipated rate hikes for the rest of the year, with traders projecting a federal funds rate of 3.5% by year-end – very close to what Fed officials have estimated.
  • The U.S. economy remains stable even as leading indicators reflect slowing growth since the Fed recently ended two years of ultra-accommodative monetary policy during the pandemic. Companies are in solid shape and are estimated to show continued earnings growth over the remainder of 2022.
  • The employment outlook remains bright even with the hiring pace cooling and the number of jobless claims climbing to an eight-month high last week. While a few companies have announced layoffs, employers overall are adding positions steadily and a drastic rise in the historically low unemployment rate of 3.6% does not appear on the horizon.
  • American consumers are continuing to buy goods and services at a strong level despite higher prices, as Friday’s retail sales report reaffirmed. Their increased savings and stronger household balance sheets should enable the economy to ride out this challenging period.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice