Market Monitor: July 8, 2022, Update

Headlines and Highlights
  • U.S. economy decelerating: After the U.S. experienced the most rapid economic recovery in four decades in 2021, the economy is slowing as stubbornly high inflation and the Federal Reserve’s interest-rate hikes constrain growth. A barometer of business conditions at service-oriented companies found expansion slowing in June even as demand remained strong. The equivalent ISM index for manufacturing similarly showed factory activity expanding for a 25th straight month but the pace at a two-year low.
  • Job growth remains strong: S. employers added a better-than-expected 372,000 jobs last month in evidence the labor market remains robust despite concerns about a downturn in the economy. The unemployment rate held at 3.6%, just above the 52-year low reached shortly before the pandemic struck. Wage growth cooled but remained high at 5.1%, likely keeping the Fed on course for another significant rate hike this month in its campaign to reduce inflation.
  • Stocks slightly positive to start third quarter: The U.S. stock market posted its longest winning streak since March, rising on the first four trading days of July in a welcome respite from its six-months-long downturn. The indexes for both large- and small-cap stocks added more than 3% while remaining down about 18% and 20%, respectively, for the year. International stocks, REITs and bonds were little-changed.
Chart of Interest

Selected Market Returns

Cooling:  Service-oriented companies such as restaurants, hotels and retailers saw their growth pace dip to a two-year low. A reading above 50 indicates expansion.

Sources: Institute for Supply Chain Management, YCharts, Altair Advisers

Key Takeaways
  • The job market is showing no signs of a recession. Besides the high number of jobs added last month, layoffs remained near historic lows at 0.9% of total employment even after edging higher in May, as reported by the Labor Department’s job openings and labor turnover survey. Job openings fell by more than 400,000 but still totaled 11.25 million.
  • Federal Reserve officials made clear in repeated remarks that they intend to maintain an aggressive pace of interest-rate hikes with another increase of as much as three-quarters of a percentage point at their July 26-27 meeting. Although the minutes from their June meeting warned of “even more restrictive” tightening if price pressures persist, the pace will ultimately be determined by current financial conditions.
  • Corporate earnings season, which heats up next week, is expected to be weaker than the historically strong recent quarters but not reflective of a sharp slowdown in business performance based on the 130 companies that reported in June. More companies raised guidance last month than lowered it, according to Bespoke research, and analyst estimates for coming earnings are still reasonably high.
  • The U.S. dollar rose to a new 20-year high against a basket of other leading currencies, boosted by recession fears and expectations of further Fed interest-rate hikes. U.S. and foreign investors are seeking safe haven in the U.S. currency and also taking advantage of higher yields.
  • A rollback of some U.S. tariffs on imported goods from China is reported to be near following discussions between the Biden administration and Chinese officials. Reducing tariffs could help ease pressure on U.S. consumer prices. While the tariff relief under consideration is unlikely to have a major impact on inflation, it could benefit certain consumer stocks.

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