THIS WEEK'S UPDATE

The Week On Wall Street

Stocks turned in a mixed performance last week as investors struggled with headlines suggesting that the Fed was

unlikely to soon ease up on its current monetary tightening policy. The Dow Jones Industrial Average slipped 0.13%,

while the Standard & Poor’s 500 rose 0.36%. The Nasdaq Composite index picked up 2.15% for the week. The

MSCI EAFE index, which tracks developed overseas stock markets, gained 0.23%.
 

Showing Resilience

Ahead of Friday’s employment report, stocks were generally higher, highlighted by a Wednesday rally triggered by

fresh earnings surprises and a better-than-expected economic report. The rally was especially notable because it

occurred when multiple Fed officials said that the fight against inflation hadn’t ended, perhaps throwing cold water

on the idea that the Fed might pivot due to weakening economic activity and the prospect of cooling inflation. Aside

from this single day of enthusiasm, markets were a bit jittery, especially as investors monitored Speaker of the House

Pelosi’s visit to Taiwan. A robust employment report on Friday reinforced the idea that the Fed would likely stay the

course on monetary tightening, resulting in a mixed market for the week.
 

Employment Report 

The U.S economy added 528,000 jobs in July, doubling the consensus expectation of 258,000. The unemployment

rate ticked lower, falling from 3.6% to 3.5%. Coincident with this job creation was strong wage growth, as average

hourly earnings rose 0.5% in July and 5.2% from a year ago. Leisure and hospitality, professional and business

services, and healthcare lead the way in reported job gains, as seen in most sectors of the economy. Even sectors

such as construction, particularly vulnerable to rising interest rates, saw job gains. The labor force participation

rate moved slightly lower, slipping to 62.1%--its lowest level this year. 
 

This Week: Key Economic Data

Wednesday: Consumer Price Index (CPI). Institute for Supply Management (ISM) Services Index. Factory Orders.

Thursday: Jobless Claims. Producer Price Index (PPI). 

Friday: Consumer Sentiment. 
 

This Week: Notable Companies Reporting Earnings

Monday: Dominion Energy, Inc. (D), Tyson Foods, Inc. (TSN).

Tuesday: Emerson Electric Co. (EMR).

Wednesday: The Walt Disney Company (DIS). 

Thursday: Illumina, Inc. (ILMN).
 

Final Thoughts

Stocks have mounted a healthy push up from the mid-June lows.  Many merely see this as a bear market bounce and

are calling for lower lows based on fears of recession and economic slowdown.  Last Friday’s unemployment report

was good.  We’ll get word on Wednesday whether we have seen peak inflation for this cycle.  We tend to think this is

the case as commodity prices have been steadily rolling over since early July, but we will learn more Wednesday.  

The market is always looking ahead at what it thinks will happen. There are still a fair amount of “ifs,” but if

inflation numbers begin to roll over then the Volcker era high interest rates many have feared probably won’t

materialize.  Around 70% of the companies reporting earnings in the S&P 500 have beaten top line earnings

estimatesby a median of around 5%.  That doesn’t sound like a deep recession to me.  Maybe next year, but

not now.  Sentimentis still biased to the negative side which could mean if we get much more positive momentum

then those folks have to start chasing a train that may be leaving the station.  Add all of these up and we could see

quarter that looks much different than the last two.
 

The jury is still out and much will hinge on inflation data.  The Senate also passed some major legislation this

weekend.  More on that next week, but initial impression is the Treasury needs money and they are arming the

IRS to come knocking.
 

Stay tuned…