Market Commentary — August 1, 2022

Markets posted solid gains last week as the Fed raised interest rates by another 75 basis (0.75%) points as expected. Second quarter GDP was negative for the second consecutive quarter, coming in at -0.9%. In a “bad news is good news” scenario, investors are betting the Fed will need to be less aggressive going forward with rate hikes to fight inflation.

Also boosting market sentiment were better-than-feared earnings from tech giants such as Amazon, Apple, and Google’s parent Alphabet. The big earnings disappointer last week was Walmart, which said food inflation was cutting into shopper spending. But like fellow retailer Target, Walmart had the inventory mix wrong for post-pandemic moods. And Intel had a terrible earnings quarter due to chip shortages amid PC demand weakness. Let’s face it – we all just got new PCs so we could work from home.

Fed Chair Powell’s dovish tone caused the U.S. Treasury yield curve to steepen, with intermediate- and short-term yields declining and long-term rates holding steady. The rate and GDP news also sent mortgage rates tumbling, as they are most correlated with the 10-year note, falling to 5.13% on Friday from 5.54%, earlier in the week. This was welcome news for the housing market.

Posting two-quarters of negative GDP, are we in a recession? The official government agencies and the Fed still say no. How rare is that? The last time it happened was 1947 according to Carson Group’s Ryan Detrick.

In ETF news, clean energy ETFs rose on news that Sen. Joe Manchin agreed to back a $370 million climate and energy spending package that includes tax credits for EVs, renewable energy projects, and clean hydrogen.

Schwab launched a Crypto Thematic ETF, providing exposure to companies “that may benefit from the development or utilization of cryptocurrencies and other digital assets.” Sounds a lot like the BLOK ETF to me. Meanwhile, Cathie Wood’s ARK funds are dumping Coinbase stock.

Barron’s had a feature on buffered ETFs and how they have worked in a down market. The problem is, the market is back to “game on”, with growth and beta the two best factors in July.

Have a great next week as we move into August.

Jane Edmondson
CEO and Co-Founder

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