Unpacking the Summer Economy

n the financial world, some weeks are more important than others, and we just lived through a big one. Let’s unpack each of the four key stats:

The Fed. As expected, the Fed bumped up short-term rates again at its July meeting. But the markets breathed a sigh of relief in reaction. Investors believe the Fed is getting a handle on inflation, which may mean slower rate increases.

Inflation. It feels like inflation is trending lower – check out gasoline prices. But the Fed’s key inflation indicator, the personal consumption expenditures index, remained stubbornly high in June. Result? We’re still getting mixed signals.

GDP. The latest report showed a second straight quarterly contraction. Two quarters of negative growth would have been a recession by definition not long ago. Economists now look at more factors, such as jobs and hiring, before labeling an economy.

Inverted Yield Curve

10-Year Treasury yield minus 2-yerar Treasury yield

The most talked-about recession indicator is the yield curve. When it inverts, or when the two-year Treasury yields more than the ten-year, the curve has preceded every recession for the past 50 years.

Source: stlouisfed.org

Company reports. They have been fantastic, with many companies checking in with better-than-expected results. In its July 29 update, FactSet reported that 73% of S& P 500 companies were surprised with earnings, and 66% were astonished by sales.

Enjoy the final weeks of summer. We’ll keep an eye on the markets.

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