July was a surprisingly good month for financial markets, with the greatest monthly gains since 2020. The S&P 500 was up 9.22 percent during the month, the Dow Jones Industrial Average was up 6.82 percent, and the Nasdaq Composite was up 12.39 percent. While all three indices are still down for the year, last month reversed a significant share of the losses. Internationally, developed markets rebounded, although emerging markets didn’t do as well as expected.

After a terrible start to 2022, markets rebounded in July. U.S. and developed international markets were up by 5 percent or more, with only emerging markets trailing. The primary driver here was the Fed. It has raised interest rates close to a neutral level, and markets are anticipating the worst of the tightening cycle has passed. But with the U.S. economy contracting for the second quarter in a row, can the rebound continue? Stay tuned to my latest Market Thoughts video to find out.

The first estimate of national economic growth, the gross domestic product (GDP), came in this morning at an annualized, quarter-on-quarter growth rate of –0.9 percent. This is better than last quarter’s number of –1.6 percent, but it is still the second quarter in a row of decline. By some definitions, this means we are now in a recession, and you can expect to see that all over the headlines in the next several days.

According to FactSet’s data, the earnings data so far is somewhat disappointing. As of the end of last week, with 21 percent of S&P 500 companies reporting, fewer companies were beating expectations for both revenues and earnings than has been normal. Earnings growth for the quarter is expected to be the lowest since the end of 2020, when the pandemic was really getting going and before the federal stimulus programs hit. Taking those headlines, things look pretty bad.

So, what will the Fed do at today's meeting? Almost everyone thinks it will raise rates by 75 bps, or three-quarters of a percent. Almost, in this case, means that a minority of people think the Fed will raise rates by more, like a full percentage point. But the takeaway is that everyone does expect rates to go up—and by an amount that, prior to the past couple of months, would have been shockingly large.

One of the headlines I have been asked about recently is the strong dollar. People are concerned about what it means, how it could hurt the U.S. economy, and, of course, how it will affect their investments. Good questions all.

One of the questions I have been getting recently is about consumer confidence. Some headlines are saying it is at all-time lows, while others (including me) are saying it isn’t bad at all. Since how people feel obviously affects how much they spend and, therefore, the economy, this is a big and meaningful difference. So, what is going on?

One of the standard portfolios that investors use, with 60 percent stocks and 40 percent bonds, has had a really bad start to the year, with the largest declines in decades. These portfolios were supposed to balance growth and risk, with both allocations growing over time but with each offsetting the other. When stocks were up, bonds would be down, and vice versa. As such, this was the portfolio that would let investors participate in the market’s gains without too much of the downside.

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!

Equity markets experienced widespread sell-offs in June due to rising investor concern about slowing economic growth and persistently high levels of inflation. The S&P 500 lost 8.25 percent during the month, while the Dow Jones Industrial Average lost 6.56 percent. The Nasdaq Composite saw the largest decline, as the technology-heavy index was down 8.65 percent in June. The market turbulence capped off a challenging quarter for equities and served as a reminder that real risks remain for markets that should be acknowledged and monitored.

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!