Major stock indices ended the week with strong gains.  It was a busy week for economic news, earnings and legislation.

The Federal Reserve met and chose to raise short term interest rates by 0.75%.  The FED chose not to give forward guidance which led to speculation that the FED could slow rate hikes at their next meeting in September.  However, incoming data will factor greatly in the FED’s next action.

Thursday saw the 2^nd quarter gross domestic product release.  The GDP shrank in the second quarter for the second quarter in a row.  Many market watchers use two negative consecutive quarters as the definition of a recession.  However, many economists disagree claiming that method is over-simplified and rely on more data such as employment, which remains strong.  Granted, things like auto production would be much stronger except for semiconductor shortages.  Also, backups at U.S. ports have constrained growth.

Both chambers of Congress passed legislation on a bipartisan basis for $280BN to help source semiconductor manufacturing in the U.S. and to fund research.  Also Senator Manchin reportedly agreed to a slimmed down version of the climate, tax and health legislation in anticipation of a Democrat only reconciliation bill.   The bill is projected to raise $739BN and spend $433BN over the next decade.  The revenue would mainly be from the imposition of a minimum 15% corporate tax and the elimination of carried interest treatment as capital gains rather than ordinary income.  It also would allow Medicare to negotiate drug prices.

Treasury yields were mixed with the 30-year bond yield rising to 3.009% and the 10-Year note falling to 2.651%.  Mortgage rates fell with the 30-year mortgage rate ending at 5.43%.  U.S. crude oil rose to $98.30 a barrel and natural gas rose to $8.29 per MMBTUs.  The U.S. dollar index fell to 105.83.  Gold rose to $1782.20 an ounce.

In the economic numbers:

• The International Monetary Fund lowered its forecast for 2022 growth from 3.6% in it’s April report to 2.9% given inflation and the war in Ukraine.
• Eurozone reported:
  • Inflation hit an all-time high of 8.9% in July from a year ago.
    • Excluding volatile food and energy, prices rose 4.0%.
  • The gross domestic product rose 0.7% in the three months ended in June.
• The S&P CoreLogic Case-Shiller National Home Price Index showed a 19.7% increase in existing home prices in the 12 months ending in June.  This was down from the 20.6% year over year growth in May.
• The Commerce Department reported:
  • The U.S. gross domestic product shrank at a 0.9% annual rate in the second quarter.
  • New home sales fell 8.1% in June from May and are down 17.4% from a year ago.
    • The median price of a new home sold was $402,400.
    • There were 475,000 new homes for sale at the end of June.  At the current sales pace, that is a 9.3 month supply.
    • Durable goods orders rose a seasonally adjusted 1.9% in June, mainly due to defense spending.
      • Excluding defense, durable goods orders rose 0.4%.
      • New orders for non-defense goods, excluding aircraft rose 0.5% in June and were up 10.1% for the first six months of 2022 versus the same period in 2021.
  • Consumer spending rose 1.1% in June, not adjusted for inflation.
  • The personal consumption expenditures price index rose 6.8% in June from the previous June.  This is the FED’s preferred measure of inflation.
• The Labor Department reported:
  • The employment cost index rose 1.3% for the 2^nd quarter, down from the 1.4% increase in the first quarter.
  • Seasonally adjusted first time claims for unemployment fell to 256,000, down from a revised 261,000 in the prior week. 
  • The 4-week moving average of claims, designed to smooth out volatility, rose to 249,250 from a revised 240,500.
  • For the full unemployment report go here:  https://www.dol.gov/ui/data.pdf .
• The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf .  Also, the EIA reported in the prior week:
  • Field production of crude oil rose from 11.9MM BPD to 12.1MM BPD.
  • Natural gas storage rose 15BN cubic feet and is below the 5-year average at this time of year.
• Baker Hughes reported the number of active oil rigs rose 6 to 605.  The number of active natural gas rigs rose 2 to 157.
• Factset reported that with 56% of S&P 500 companies reporting 2^nd quarter earnings, the blended earnings increase is 6.0%.

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Loren C. Rex, CFP^®, MA                                                                     Erik A Smith, AIF®

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 These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  The Indices mentioned are unmanaged and cannot be invested into directly.