US Market Remains Robust

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At the close of business last Friday, global equities were little changed on the week amid easing fears of a near-term US recession but renewed jitters that the Fed US Federal Reserve will need to tighten more than expected. The yield on the US 10-year Treasury note rose to 2.83% from 2.65% a week ago, though the price of a barrel of West Texas Intermediate crude oil fell to $90 from $100 last Friday. Volatility, as measured by the CBOE Volatility Index (VIX), was steady near 21.6.



The US Senate voted 95-1 this week to approve NATO membership for Sweden and Finland.



Our economy lost 30,600 jobs in July—marking the second month in a row of lost jobs. Goods-producing industries added about 23,000 jobs during the month, but that was offset by a large loss of 53,000 jobs in the service sector. The healthcare sector lost 22,000 jobs.




With about 86% of the constituents of the S&P 500 Index having reported for Q2 2022, blended earnings per share show that earnings growth is running at 6.8% while sales rose about 13.6% compared with the same quarter a year ago. Earnings growth is running slightly behind Q1’s pace while sales growth is slightly faster than last quarter.

US purchasing managers’ indices surprise to upside
Both the Institute for Supply Management’s manufacturing and non-manufacturing PMIs surprised to the upside in July, tempering concerns of a US recession in the near term. The manufacturing index declined to 52.8 from 53 in June but came in stronger than the expected decline to 52.0. The non-manufacturing index showed surprising strength, rising to 56.7 from 55.3, handily beating forecasts for a decline to 53.5. Falling prices of raw materials saw the prices paid component of the manufacturing index tumble to 60 in July from 78.5 in June, a sign that inflation may be beginning to peak. June US durable goods orders data released this week also showed strength, rising 2% in June.

US added more than twice as many jobs as expected in July
Friday’s US employment report was strong on most metrics. The economy added 528,000 people to payrolls in July, more than twice the consensus forecast gain of 250,000. The unemployment rate dipped to 3.5%, matching the pre-pandemic low, while average hourly earnings advanced a stronger-than-expected 5.2% compared with a year ago. Strong PMI numbers, strong employment numbers and wage growth signal that the US economy remains very strong and is not headed for a recession in 2022.



In the euro zone, the composite PMI dipped into contraction at 49.9 in July from 52 in June.

BOE hikes; forecasts long recession
The Bank of England delivered its largest rate hike in 27 years on Thursday, taking its policy rate up a half-percentage point to 1.75%, while at the same time forecasting that the British economy will fall into a five-quarter-long recession beginning in Q4. The bank expects consumer prices to top out at a 13.3% year-over-year rate in October and does not forecast them falling back to its 2% target until 2025. BOE Governor Andrew Bailey said all options remain on the table for the September meeting of the Monetary Policy Committee.



In China PMI numbers fell to 54 from 55.3 in July. A Number above 50 indicates the economy is expanding.

China conducts drills near Taiwan after Pelosi’s visit
In response to US Speaker of the House Nancy Pelosi’s visit to Taiwan this past week, Beijing launched multiple missiles over the self-governing island, sent drones into its airspace and deployed an aircraft carrier off Taiwan’s coast in a series of large-scale military drills designed to intimidate citizens of the breakaway province. The US condemned the missile launches as a “significant escalation.” Cargo routes in the Taiwan Strait have been temporarily disrupted, adding marginally to supply chain woes.



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