Market Commentary

Jobs Keep Coming | Market Analysis for the Busy Investor

July 29, 2022

June 7th, 2022

Author: Ivan Zhang

Top market insights for the week:

Observation 1

Biden stresses his respect for Fed independence which means one of two things: the administration is in denial and not concerned with losing seats in the midterms due to rate hikes, or is hoping to pin the blame on the entirely “independent” Fed which the government has no sway over.

TL;DR: Rate hikes are coming.

Observation 2

Current prices on consumer goods are at record highs including $10+ beers at stadiums and $10 gallon for gas in California. Inflation is here to stay, what we really need to watch out for is deflation. Reducing inflation really means slowing the rate of increase. Not making prices go down. Why is this an important distinction? US debt per person is the highest it has ever been. If the Fed is aggressive enough to cause deflation, the cost of servicing existing debt is going to go up in real terms. Imagine paying back a business loan, but only getting 90% of the revenues of last year even though  you sold the same amount of goods. This could cause massive defaults and a cascading debt spiral.

TL;DR: High prices are here to stay.

Observation 3

The May non-farm Payroll came in above expectations with positive revisions to the month prior which will almost certainly cause the Fed to increase interest rates since the economy is continuing to make progress. 

TL;DR: Did we mention rate hikes are coming?

Observation 4

The war in Ukraine has been going on for 100 days. With the wheat harvest season looming, there is a scramble to sort out logistics to feed the many countries that depend on Ukraine for their crops. If that doesn’t happen there will be significant pain for developing countries facing food scarcity and the markets will certainly feel the repercussions of this crisis. 

TL;DR: We need to keep our eyes on the fallout from Ukraine’s wheat harvest.