The last week of July was filled with economic activity. As I predicted in my May commentary, the U.S. was in a recession during the first half of the year as 2nd quarter GDP came in at -0.9% last week, confirming two consecutive quarters of negative GDP growth. That was coupled with another 75-basis point rate increase by the Fed, bringing the Fed Funds range to 2.5%. Investors may wonder why the Fed increases rates with a confirmed recession and that’s because inflation remains too high. But that number is coming down as demand is destructing, the Fed’s objective right now. The market understands lower inflation means less Fed tightening. Accordingly, July marked the biggest jump in stocks in two years.
If none of this makes much sense to the novice investor, that’s fair. Here’s the explanation: markets move well ahead of the economic data being confirmed by headline numbers, like CPI, as those figures are just a concoction of many other more obscure numbers that are followed by professionals like our team here at Warcap. The macro inputs must then be coupled with corporate earnings and interest rates. Last week was filled with earnings and companies who performed better than expected and they have rallied more than 20%. Investing is a full-time gig and I’m proud of our team here at Warcap for navigating another challenging environment. We’ve positioned for the next leg and our clients are benefiting. As always, I appreciate the continued trust and confidence.