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Market Recap – July 24, 2023

Keel Point

July 24, 2023

The big news this week will be the Fed’s announcement Wednesday afternoon of its decision to raise interest rates another ¼%.  Notwithstanding continuing concerns about a U.S. recession, the S&P 500 closed up last week up, and is up 18.6% this year.

  • As the Fed announces its Fed funds rate increase to a 22-year high of between 5.25% and 5.50%, it likely will also warn that inflation remains higher than it would like and that it will maintain its tightening bias until incoming inflation data confirm positive downward trends.
  • The June CPI data released ten days ago showed core prices up by only 0.16% m/m, equivalent to slightly less than 2% on an annualized basis, which has buoyed financial market hopes that this week’s ¼% increase will be the last one this year and that the Fed will begin cutting rates in the first half of 2024.  
  • There are growing signs of broader disinflation as more core goods and services components have been showing a deceleration in the pace of price increases for a few months now, reducing chances the Fed will over-tighten with additional rate increases in September-October.
  • On Friday the Fed’s preferred Personal Consumption Expenditures inflation metric is expected to show that both headline and core PCE inflation have come done over the last 12 months through June to 3.1% and 4.2%, respectively.  

Reconciling the conflicting data and market expectations about recession is challenging, and equity markets continue to believe the U.S. can avoid recession in 2023.  

  • This Thursday, second-quarter GDP will be reported with an expected increase of 1.5% (annualized), a slowdown from 2.0% in the first quarter.  The decrease is most likely from a drop in in consumer spending but with growth from business investment.  
  • Goldman Sachs just reported that it now sees only a 1 in 5 chance of a US recession over the next year. Falling inflation also has a clear link to rising consumption as real incomes grow.
  • The index of Leading Economic Indicators (“LEI”) fell again in June and is down 9.9% from its 2021 peak, which has never happened without an ensuing recession. Bloomberg consensus suggests the U.S. economy will grind to a halt this quarter and contract in Q4. 
  • Consumer balance sheets remain strong with robust labor markets and consumer net worth having rebounded to $152 trillion – near its January 2022 high.

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients. 

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