Equities Fall on Rising Rate Worries

Equities Fall on Rising Rate Worries

Global equities fell last week with a sharp decline on Friday amid Fed Chair Jerome Powell’s hawkish speech at the Jackson Hole Fed symposium. Global markets (represented by the MSCI All Country World Index) were down -2.90% and domestic stocks (represented by the S&P 500 Index) were down -4.02%.

Recession Possibility

US Fed Chair Jerome Powell’s comments on Friday seemed to spook markets as he reiterated that the Fed remains committed to taming inflation with potential aggressive rate hikes even with the risk of recession a possibility. The tech-heavy Nasdaq Composite Index was hit the hardest on Friday down almost 4% for the session.

PCE Index

The US Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures Price Index, was released last week. The PCE Index rose 6.3% year-over-year in July which was down from 6.8% in June. Month-over-month, the index fell for the first time since the beginning months of the pandemic. While these figures are encouraging that we may have passed peak inflation, we still sit heavily over the Fed’s 2% inflation target.

GDP Estimate

The US second quarter GDP estimate was revised upward Thursday to a contraction of 0.6% versus the initial figure from July of 0.9%. While the revision reflected stronger consumer spending, the estimate still marks two consecutive quarters of US GDP contraction.

Jobs Report

The US monthly jobs report will be released next week providing insight on jobs growth momentum among the hawkish Fed’s attempts to cool the economy to restore price stability.

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.