Last week we talked about how this would be a big week with the Federal Reserve and GDP reports. The data and the market definitely didn’t disappoint. The Fed raised rates by 75 basis points, putting the current Fed target rate at 2.5%. That was in line with pretty much all of Wall Street’s expectations. The Fed has done a really good job recently of establishing expectations of what they’re going to do. The big question now will be about what they’re going to do next. The next meeting is at the end of September, so we have a very long dead period for the Fed. Jerome Powell’s statements were actually more impactful than their actual actions, and his statements were pretty cautious in terms of being too aggressive, which the market really liked. His decision came out on Wednesday, and then we get the GDP report on Thursday. Jerome Powell mentioned on Wednesday, prior to the GDP report coming out, that he didn’t see the US and in recession. Then, on Thursday, we saw the GDP come out negative and below expectations. GDP fell about point 9%. This is the first estimate for the second quarter and could be revised higher at a later date, but that still puts us at back-to-back quarters of negative growth. The data showed that the consumer stayed strong, which is good. The consumer number actually grew at 0.7 points. As we’ve been talking through inflation data, we saw that trade was actually a positive 1.4% which means we’re exporting more than we’re importing. That’s great because we’re exporting goods at higher prices and importing goods at lower prices, which should be helpful for inflation. Our GDP data was negative across the board, the economy is weakening, we saw CAP X flat, we saw housing fall, and the Fed did tighten, Interest rates responded by long term rates coming down considerably, which is negative for future growth, but is taken as a positive right now for the markets.
We received a lot of questions from clients at the end of the last week and over the weekend about the rally that we saw on the market last week. People want to know if that rally means that the volatility of the market is over. We did some research and analysis over the weekend regarding that topic. On the chart shown in this episode, it shows after the rally last week, 68% of S&P 500 stocks are above their 50-day moving average. That is great news however, we’re still shy of the 90% threshold that we historically associate with escape velocity in the early days of a new advance in the market. What we’re seeing right now is a kind of a discriminating rally and not so much as a rising tide that we would like to see for a longer-term uptrend. We got positive news last week, but we would like to see more of that to be true believers in a longer-term rally.
We got the money supply report last week and it shows a 5.5% growth year-over-year. It shows a 1.6% growth just for this year. This is way below the normal growth of 6% that we’ve seen for a normal year, and even further below the 14% we saw in the first half of 2021, and the overall 37% that we saw in 2022. This shows that the government is printing less money, which is a good thing, as it helps fight inflation. As you can see in the chart shown in this episode, there is almost a perfect 13-month lag from core CPI, which is inflation related data excluding energy and food costs, which are a little more variable, and money supply growth. We saw money supply really ramp up in 2021 and 2020. Now, 13 months later, we are seeing the CPI number and feeling that now. Now that it’s coming down, that’s a good sign that maybe the back half of this year going into next year, we could see a meaningful decline in inflation if these continue in the same pattern.
With the market rally on Friday, the S&P 500 closed at a price of 4,130. That gives us a new resistance level of 4,160 and a new support level of 4,100. Also, we talked a little bit last week about the 50-day moving average becoming stagnant. On Thursday of last week that actually flipped to the upside. This is the first time we’ve seen that happen since April 19th of this year. We’re going to continue watching these numbers to see if this momentum is going to build over these next couple of weeks.
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