Prospects of cooling inflation powered a rally in stock prices last week despite growing recession concerns.
The Dow Jones Industrial Average gained 5.39%, while the Standard & Poor’s 500 climbed 6.45%. The Nasdaq Composite index rose 7.49% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, edged 0.78% higher.1,2,3
Declining energy and food prices and falling bond yields signaled a potentially improving inflation outlook, buoying investor sentiment. The rally in stocks was most powerful on the first and final trading days of a holiday-shortened week. Stocks turned a bit choppy mid-week as investors digested Fed Chair Jerome Powell’s Senate appearance but resumed their momentum on Thursday and rallied Friday as rate-hike expectations eased.
Though the weekly gain was a welcome respite from the market’s downward trend, declining bond yields and falling food and energy prices can also be interpreted as signs of slowing economic growth, which may represent a headwind for corporate earnings in the months ahead.
Fed Chair Jerome Powell told members of the Senate Finance Committee that the Fed is committed to lowering inflation and moving quickly to do so. He conceded that a recession could result from the Fed’s inflation-fighting efforts and acknowledged that some of the forces driving inflation (e.g., supply chain, war) are out of the Fed’s control.4
Perhaps the most exciting part of his testimony was what he didn’t say, which was a definitive statement on future hikes. Instead, Powell told lawmakers that he “anticipate[s] that ongoing rate increases will be appropriate.” Before his testimony, the Fed published a new research paper that found a greater than 50% chance of recession in the next four quarters.5
This Week: Key Economic Data
Monday: Durable Goods Orders.
Tuesday: Consumer Confidence.
Wednesday: Gross Domestic Product (Third Estimate for Q1).
Thursday: Jobless Claims.
Friday: Institute for Supply Management (ISM) Manufacturing Index.
Source: Econoday, June 24, 2022
This Week: Companies Reporting Earnings
Wednesday: General Mills, Inc. (GIS).
Thursday: Micron Technology, Inc. (MU), Constellation Brands, Inc. (STZ), Walgreens Boots Alliance, Inc. (WBA).
Source: Zacks, June 24, 2022
Footnotes and Sources
2. The Wall Street Journal, June 24, 2022
3. The Wall Street Journal, June 24, 2022
4. The Wall Street Journal, June 22, 2022
5. The Wall Street Journal, June 22, 2022
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