The big question on everyone’s mind is, why is the market going down? The answer, in short, is interest rates. Interest rates are up. When rates go up, stocks tend to go down. And this takes us to the next question: why are interest rates up—and will they continue to rise?

After a massive surge in homebuying throughout the pandemic, cracks are starting to show. Demand has begun to wane, while supply is increasing at the fastest pace in decades. So, will we see a moderation in prices if supply continues to outpace demand in the latter half of the year and into 2023?

What a whirlwind year it has been in the financial markets. Not since 1994 have investors seen simultaneous declines in both equities and fixed income, prompting many to question the viability of holding both in a portfolio context. Negative performance across asset classes during the first half of 2022 challenged even the most ardent believers of diversification and modern portfolio theory, leaving many of us to wonder whether we are entering a new paradigm for asset allocation. Should investors abandon the view that stocks and bonds can provide complementary exposures in a portfolio? Disclaimer: I don’t think so.

Earlier this week, we saw the Consumer Price Index (CPI) report was down from last month and generally well below expectations—in this case, a good thing. Today, we got the Producer Price Index (PPI) report, which was also down from last month and less than expected. Inflation appears to have peaked and is potentially on track to decline.

As we negotiate the recession or no recession debate, one of the key data points is what’s called a yield curve inversion, which is a greatly intimidating technical term for something that is really pretty simple: the interest rate on a long-term bond minus the interest rate on a short-term bond. But economists can’t really be intimidating if we just say that!

Yesterday, I spent a lot of time talking about how the jobs report was likely to meet expectations, but the underlying assumption was that the risks were to the downside. I talked about how, if job growth fell short, it was likely due to a lack of workers rather than a lack of jobs. I did mention the report could surprise to the upside, but didn’t give it a lot of attention. So when I looked at the actual data this morning, I can summarize my reaction with one word: Wow!

With all the concerns around a recession, one of the key data points that says the economy is still growing has been the jobs numbers. With companies adding hundreds of thousands of jobs per month, with quit rates still very high, with millions more jobs available than we have ever seen before, the jobs market still looks like boom times—not a recession. The question, of course, is how long can that good news continue? This Friday’s jobs report will give us the most current answer.

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.

Energy was the top-performing equity sector in the S&P 500 during the first half of 2022, with a total return of 31.8 percent. Crude oil and natural gas fundamentals were favorable heading into 2022 amid strong demand, low inventories, and limited spare capacity globally. Since the pandemic recovery, demand has exceeded supply for both commodities. Furthermore, Russia’s invasion of Ukraine accelerated the supply constraints resulting in spiking energy prices.

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.