Take a look at last week’s market recap from Joe Gallemore, CIMA® Partner & Director of Investment Management for Argent Bridge Advisors. Watch the video now!
Stock indexes faced a lot of headwinds last week as the June inflation figure came out at a whopping 9.1% (an increase since June 21). This was another gut punch for the market, which tried to rally back on Friday, but still ended the week slightly down.
Most stock indexes are in the -20% range for the year, where they have been oscillating since about mid-May.
One positive to point out is that energy prices have seen a meaningful decline in the past couple of weeks. This has been noticeable at the gas pump. This decline has follow-on effects in different areas such as airfare and shipping costs. So hopefully this decline in energy prices translates to a nice decrease in the July inflation figure, which will be published in August.
A pause or reversal of the red-hot inflation trend, even if only temporary, I’m sure would be a very welcome development for the stock market.
One other factor at play right now, which is much more subtle, is that bonds have leveled off and are holding steady. The US Aggregate Bond index gained 0.9% last week in the face of the highest Y-o-Y inflation print in nearly half a century. That was very nice to see.
One reason this stability has seemingly returned is because of the uncertainty of interest rate changes in response to inflation has become clearer now that we’re further into it.
There was a time back in March and April when bonds were down as much as stocks, and it felt like asset allocation was failing. But then bonds sort of reached a floor and have held close to that resistance level while stocks continued to decline. So, while this may just feel like taking Advil to dull your headache when your whole body has the flu, it’s nice to see the diversification benefits in your portfolio have kicked in once again.
If the US definitively enters a recession and stocks continue to decline, it’s very possible we see a recovery in bonds, which have historically been a flight-to-safety haven.