August 3, 2022

Investment Committee

Capital Market Activity (August, 2022)

After a sharp decline in the first six months of this year, stocks were up nicely in July; a global equity portfolio was up just over 6%. These results were a welcome respite from what we have experienced thus far this year. Markets look to the future. Let us hope they signal positive expectations for the Fed tamping down inflation while avoiding a recession. Uncertainty remains, but an upbeat month is a welcomed change, nonetheless.

Yields were up at the short end, but down a bit for longer maturing bonds in July. These twists in the yield curve are consistent with the Fed increasing the short-term interest rates it controls coupled with reasonable inflation expectations over extended periods. The spread between nominal and inflation protected yields continue to signal inflation in the range of 2.5% over five and ten-year periods.

First quarter measures of Gross Domestic Product (GDP) and National Income, which ought to equal, provide conflicting indications whether we are in a recession. Employment numbers continue to be positive. Keep in mind that the economy is coming out of a 100-year pandemic – we should take measures of economic activity with a “grain of salt”. Although they can change quickly, signals from stock and bond markets are positive.

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