In this month’s recap: Stocks fell as growing recession talk prompted investors to manage risk in their portfolios.

Monthly Economic Update

Presented by Brower Financial Group, July 2022

U.S. Markets

Stock prices were lower in June as recession talk prompted investors to manage risk in their portfolios.

The Dow Jones Industrial Average lost 6.71 percent, while the Standard & Poor’s 500 Index fell 8.39 percent. The tech-heavy Nasdaq Composite dropped 8.71 percent.¹

Focus on Inflation

Markets grappled this month with an uncertain economic outlook. After a descent in the first half of June, markets were further rattled by the May inflation report which showed an 8.6 percent increase, year-over-year, in the Consumer Price Index (CPI). Led by a 34.6 percent increase in energy prices and a 10.1 percent rise in food prices, making this the highest rate of increase since December 1981.²

The unwelcome CPI number raised concerns that the Fed would need to become more aggressive with its rate hikes, making the prospect of a recession more likely.

Fed Raises Rates

Stocks briefly rallied after the Fed announced a hike in short-term interest rates of 75 basis points. All Fed members said they expected rates to rise to at least 3 percent by year-end, with half anticipating that rates may rise to 3.375 percent.³

Mixed Signals on Economic Growth

Economic growth concerns moved to the forefront due, in part, to weak economic data out of China. Disappointing earnings from major U.S. retailers also heightened fears about domestic growth. But upbeat news from several mid-size and discount retailers suggested the American consumer remained healthy.

Powell’s Commitment

On June 22, Fed Chair Powell told Congress that the Fed was committed to combating inflation. Stocks surged in the third week of the month on the premise that an economic slowdown may allow the Fed to be less aggressive with future rate hikes. But the enthusiasm faded in the final days of trading as choppy price action led to declines to close out the month.

Sector Scorecard

All industry sectors were lower in June, with declines in Communications Services (-9.82 percent), Consumer Discretionary (-11.04 percent), Consumer Staples (-3.08 percent), Energy (-17.91 percent), Financials (-11.14 percent), Health Care (-3.02 percent), Industrials (-7.77 percent), Materials (-14.41 percent), Real Estate (-7.64 percent), Technology (-9.48 percent) and Utilities (-5.65 percent).⁴

What Investors May Be Talking About in July

Earnings season begins in early July, providing investors with key insights into the health of American consumers. Companies will also communicate how they are navigating an increasingly challenging economic landscape.

Since the start of 2022, stocks have become less expensive on the basis of their price/earnings (P/E) ratios. When the stock market hit an all-time high on January 3, 2022, the forward P/E ratio for the S&P 500 index was 21.4. The 25-year average P/E sits at 16.5, for the period ended May 12, 2022. At the end of June 2022, the average forward P/E was 15.9.^5,6

Each quarter, the degree to which the stock market responds to corporate earnings varies. But as investors grapple with a cloudy outlook, company reports over the next four to six weeks may serve as an important barometer for measuring the nation’s economic health and evaluating stock prices.

Tip of the Month

New parents can sometimes spend a little too much on cute and trendy stuff. Here’s a test: will the item improve the quality of care for your baby? If not, leave it at the store.

World Markets

Slowing economic activity and rising inflation dragged overseas markets lower, with the MSCI-EAFE Index sliding 8.07 percent last month.⁷

Major European markets were under pressure this month, as they faced increasing economic and geopolitical headwinds. Italy fell to -12.86 percent, while Germany dropped to -10.95 percent. Meanwhile, France dipped to -8.31 percent, as Spain decreased to -7.63 and the U.K. to -5.77 percent.⁸

Pacific Rim markets were lower with the exception of Hong Kong, which rose 2.08 as China emerged from its COVID lockdown. Korea fell -14.17 percent, Australia -9.31 percent and Japan -4.93 percent.⁹

Indicators

Gross Domestic Product: The final estimate of first quarter GDP growth was revised lower to -1.6 percent.¹⁰

Employment: Employers added 390,000 new jobs in May, which represented a slower pace than previous months despite a healthier number than expected. The unemployment rate remained unchanged at 3.6 percent, while wage growth moderated from 5.5 percent in April to 5.2 percent in May.¹¹

Retail Sales: Retail sales fell 0.3 percent in May, perhaps reflecting the squeeze from higher costs and interest rates. Excluding gasoline sales, retail sales fell 0.7 percent.¹²

Industrial Production: Output at the nation’s factories, mines, and utilities rose 0.2 percent, the fifth consecutive monthly increase.¹³

Housing: Housing starts fell to their lowest level in over a year, declining 14.4 percent in May. Single-family homes dropped 9.2 percent, while multiple family housing sagged 26.8 percent.¹⁴

Sales of existing homes fell 3.4 percent in comparison to April and were 8.6 percent lower than a year ago. It was the weakest reading since June 2020.¹⁵

New home sales posted their first gain this year, rising 10.7 percent in May.¹⁶

Consumer Price Index: Consumer prices rose 8.6 percent from May 2021 levels, the highest rate since December 1981. Energy (+34.6 percent) and food (+10.1 percent) prices led the year-over-year increase in the Consumer Price Index (CPI). On a month-to-month basis, the CPI rose well above the consensus estimate of 0.7 percent to a full 1 percent.¹⁷

Durable Goods Orders: New orders for long lasting goods rose 0.7 percent in May, making it the seventh out of the last eight months that orders have increased.¹⁸

Quote of the Month

“Golf is deceptively simple and endlessly complicated; it satisfies the soul and frustrates the intellect. It is at the same time rewarding and maddening—and it is without a doubt the greatest game mankind has ever invented.”

ARNOLD PALMER

The Fed

The Federal Reserve announced a 0.75 percent hike in the federal funds rate. It was the biggest rate increase since 1994.¹⁹

The announcement was made following the June 14–15 meeting of the Federal Open Market Committee (FOMC). The FOMC also indicated new rate projections, showing that all members expect rates to rise to at least 3.0 percent by year-end and half the members expecting rates to rise to 3.375 percent.

The 75-basis-point rate increase was higher than earlier Fed guidance of a 50-basis-point increase and a response to recent inflation data and rising inflationary expectations.¹⁹

MARKET INDEX	Y-T-D CHANGE	June 2022
DJIA	-15.31%	-6.71%
NASDAQ	-29.51%	-8.71%
S&P 500	-20.58%	-8.39%

BOND YIELD	Y-T-D	June 2022
10 YR TREASURY	1.46%	2.97%

Sources: Yahoo Finance, June 30, 2022.

The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.

About Brower Financial Group

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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalization in the FTSE Developed Europe Index. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE TWSE Taiwan 50 Index is a capitalization-weighted index of stocks comprising 50 companies listed on the Taiwan Stock Exchange developed by Taiwan Stock Exchange in collaboration with FTSE. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

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WSJ.com, June 30, 2022
CNBC.com, June 10, 2022
WSJ.com, June 15, 2022
Sector.SPDR.com, June 2022
Insight.Factset.com, May 16, 2022
am.JPMorgan.com, June 30, 2022
MSCI.com, June 30, 2022
MSCI.com, June 30, 2022
MSCI.com, June 30, 2022
BEA.gov, June 29, 2022
WSJ.com, June 3, 2022
WSJ.com, June 15, 2022
MarketWatch.com, June 17, 2022
MarketWatch.com, June 16, 2022
CNBC.com, June 21, 2022
Bloomberg.com, June 24, 2022
CNBC.com, June 10, 2022
Census.gov, June 27, 2022
WSJ.com, June 15, 2022

Monthly Economic Update: July 2022