More Downgrade Warnings and Inflation Woes Weigh on Markets

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Markets declined last week with more downgrade warnings and Fed minutes.  Positive economic data along with Fed minutes that showed members are still worried about inflation caused investors to get nervous about high interest rates for longer than expected.  Early last week, Retail Sales came in stronger than expected—+0.7% for July and +3.2% year-over-year.  That was followed up by strong 2nd quarter earnings from big box retailers such as Home Depot, Target, and Walmart.  Proof that the consumer is alive and well wasn’t cheered by the market due to continued concerns about inflation.  Those fears are somewhat unfounded as consumers have seen the “staples” portion of inflation—utilities, gas, food at home, and electricity—decline 10% year-over-year.  Fed Futures continue to show a 90% probability of no rate hike in September.

Data from the Fed shows that financial conditions are not currently flashing recession signals.  The Chicago Fed's National Financial Conditions Index and the St. Louis Fed's Financial Stress Index both show loose/stable conditions.  The Atlanta Fed also increased their projections for 3rd quarter GDP last week from +5.0% to +5.8%.  This week investors will be parsing the words of several Fed speakers, most especially those of Fed Chairman Powell on Friday at the annual Jackson Hole, WY Economic Policy Symposium.  Given recent downgrades and warnings on banks by the likes of Fitch and Moody’s, comments this week during the Jackson Hole event will be closely watched for some reassurance that financial conditions remain stable.

___________________________________________________________________________________________________________

Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general. 

Past Performance does not guarantee future results.