I am writing this a day early as we head into the July 4th weekend. I’d like to say I’m being proactive and
giving everyone information before they begin to think about the holiday weekend. The truth is, I’m
headed out for a long weekend and wanted to get this out early.
Entering Thursday’s session, the S&P 500 was down more than 15% for the quarter — on pace for its
biggest quarterly loss since 2020, when it lost 20%. The Nasdaq Composite was headed for its worst
quarter since 2008, losing 21.4%. As for the Dow Jones Industrial Average, it was down more than 10%
for the period — on pace for its worst one-quarter decline since 2020.
This quarter’s losses also put the S&P 500 on pace for its worst first half of a year since 1970, falling
19.9%. The benchmark tumbled into a bear market as well — dropping more than 20% from a record set
There are a few, interrelated culprits for this horrible second quarter. One is inflation, which has led the
Federal Reserve and other central banks to hike rates at a faster pace than previously expected. This has
led to the second factor, which is increasing fears that the economy will fall into a recession.
While the Fed has so far telegraphed half-point hikes at its meetings then in June raised rates 75 basis
points, there is some murmur that a larger than 75 basis point increase could be on the table. I doubt it.
We are seeing some slow in demand as inventories at places such as Walmart and Target begin to build,
and energy prices are putting pressure on the consumer. Both play in the favor of the Fed as they try to
slow the growth in the economy without causing recession. As for the Fed, Doves (those who want
looser monetary policy to spur growth) just don’t exist on the committee right now and many are eyeing
the Fed’s dot plot to see where interest rates are going in the coming months and years ahead. Mid-
month, the 2-year Treasury rate jumped more than 16 basis points to 3.21%, briefly topping the
benchmark 10-year yield to flash another recession signal (the two last inverted after the last meeting in
May, Powell made it very clear the Fed anticipated raising rates
We’ve told people to watch the M2 measure of money to understand whether inflation will cool down
or heat up. The Fed only releases this data monthly. June 28 th the Fed released May data on the M2
money supply and from our point of view it was welcome news, signaling that the monetary surge
propelling US inflation numbers to a four-decade high seems to be slowing. The amount of M2 money in
circulation rose just 0.1% in May (after falling in April).
Did you know that Pennsylvania and South Carolina voted against the Declaration of Independence?
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