facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause

Weekly Update 7/8/2022: Fed Minutes Released as Markets Await Earnings

  • CDK deal closes
  • Walmart levies fuel charge
  • Mortgage rates dip
  • Changes in Britain

Labor Data

Nonfarm payrolls grew by 372,000 in June bringing the three month average to nearly 400,000. In a survey of economists by Bloomberg, the consensus expectation was 265,000 so this was a robust report. The unemployment rate remained unchanged from May at 3.6% and was in-line with expectations. Average hourly earnings rose 5.1% last month on an annual basis, a little below the revised 5.3% in May. The closely watched labor force participation rate, measuring the share of adults working or looking for work, remained steady at 62.2% in June compared to 62.3% in May but below the expected level of 62.4%. These numbers suggest that many companies are in a wait-and-see mode about the economic future. They do not want to lay off a large amount of workers even in the face of anecdotal evidence showing slowing across various industries because there has been too few workers available for jobs since mid-year 2021 and, if demand does not decline rapidly, there will be an ongoing need to fill positions. Nevertheless, weekly jobless claims rose slightly to the highest since January according to data from the Labor Department released yesterday. The median estimate in a Bloomberg survey of economists called for 230,000 in unemployment applications while the number came in at 235,000. Continuing claims for state benefits rose to 1.4 million in the week ended June 25, which remains near a historic low. Some companies, especially in the tech sector, have begun select job cuts such as at Netflix and Tesla. Meanwhile, employment in leisure and hospitality remain well below prepandemic levels as a key bottleneck remains labor availability especially as tourism picks up.

Fed News

When Federal Reserve officials met at their regularly scheduled meeting last month, the theme was clear: tame inflation or else. The Federal Open Market Committee (FOMC) voted to raise the federal funds rate, the main tool for monetary policy, by 75 basis points (0.75%) in the largest increase since 1994. “Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the minutes said. Fed officials have made it clear that rising rates may cause an economic slowdown, even a recession. But if that is the price to be paid, so be it. The quarterly commentary to be released with client reports in a few weeks will go more into the Fed’s thinking on this matter, but suffice it to say that the overall tone has been that inflationary fighting is more important that recessionary fears.

Since last month’s meeting, several Fed bank presidents and governors have endorsed another 75 basis point hike at the end of this month when the next FOMC meeting will be held. Besides today’s payroll figures, there will be a number of key economic data releases. The latest Consumer Price Index data is due next Wednesday. Expectations are for readings on an annual basis to be over 8% for the headline figure and close to 6% on the core level once food and energy prices are removed. Producer prices follow one day later and year-over-year final demand is expected to be 10% higher according to a survey of economists polled by Bloomberg. Retail sales follow on Friday. Consumers, still flush with cash from prior stimulus moves, have held up well even in the face of decades-high inflationary figures so it will be interesting to see if this trend continues. Next Friday we will also get the latest University of Michigan expectations data which played a key role in helping convince the FOMC to boost rates 25 basis points more than what was anticipated leading up to last month’s meeting. The following week brings key housing data including starts, permits, a survey of homebuilders and existing home sales which comprise around 90% of all residential transactions. New home sales and durable goods orders will come out right before the Fed’s decision is released at 2:00PM ET on Wednesday, July 27.

Most of the data will be backwards-looking, meaning it will be information on events that have already occurred. Markets are forward-looking meaning that traders and investors take positions based upon what they believe will happen in the future, and these expectations change second to second. Recently, commodity and energy prices have declined since last month’s meeting. The price of a barrel of oil has dipped below $100 for the first time this week since early May, mostly in response to recessionary fears as the situation in the Ukraine has not changed over the past few weeks. Does this mean the Fed will be less aggressive in meetings going forward? The minutes did not make any mention of future moves other than to say that by raising rates quickly now, officials might have more flexibility to be less forceful in the future. That helped the major markets close in the green after the minutes were released on Wednesday. Average rates on the 30-year fixed mortgage, which jumped to around 6% after the Fed’s June meeting, have since declined, to 5.74% last week, according to the Mortgage Bankers Association showing how quickly markets react to new information. It is going to take a lot more than a dip in mortgage rates for the Fed to change its tune if they are truly adamant that they want inflation to return to “around 2%.” As such, more volatility and more uncertainty are likely to be the major themes through the end of the month at least. Stay tuned.

International News

British Prime Minister Boris Johnson said yesterday that he would step down from his position but remain in power until elections could be held. More than 50 ministers and senior government aides resigned this week, leaving the British government in a state of paralysis. Mr. Johnson said he would appoint a new cabinet as he stays in office until a successor has been found, a process that could take some months though many want him out of office immediately. Mr. Johnson was unapologetic when making his announcement: “I want you to know how sad I am at giving up the best job in the world. But them’s the breaks,” he said. While he mentioned recently of wanting to stay in office until the end of the decade, his influence and authority withered to the point where it was pointless in the face of many scandals and rather than be forced out, he quit.

While the political ramifications may be fascinating, as investors, we are focused on what these moves mean for our shares. The British pound was actually up 0.4% for the day after his resignation. However, it still remains down for the year. Under Mr. Johnson’s premiership, Britain completed its exit from the European Union severing it politically from the rest of the continent. The country never accepted the euro as its currency, preferring to keep its beloved pound for monetary transactions. While some of our holdings have British exposure, the resulting schism has not resulted in any detrimental repercussions to our positions. As for the rest of Europe, new leadership, whenever it does get it put into place, will have to deal with the situation in the Ukraine as well as fighting inflationary forces which have had an effect over there as well. This week, the euro neared a 20-year low against the dollar after natural gas and electricity prices surged. The threat of Russia cutting off supplies used to heat homes and keep factories running has raised the level of fear for currency traders. And dollar strength is not just against European currencies, the Japanese yen is down about 18% and the Australian dollar is down 10% against the U.S. dollar. Japan is also dealing with the shock assassination of former Prime Minister Shinzo Abe—that country’s longest serving premier who died after being shot at a campaign event Friday. We expect that many companies with overseas exposure will be pointing to dollar headwinds and geopolitical events when they report earnings in a few weeks.


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by STEIGERWALD, GORDON & KOCH WEALTH ADVISORS (“SGK”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from SGK. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. SGK is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of SGK’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https://sgkwealthadvisors.com/. Please Note: If you are an SGK client, please remember to contact SGK, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. SGK shall continue to rely on the accuracy of information that you have provided. Please Note: IF you are an SGK client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.