July 11, 2022

Market Update

The Economy

Consumer sentiment is being driven by inflation and stocks but is worse than warranted. Consumer prices increased at an 8.6% annual rate in May, and many Americans are  now starting to forgo some purchases and outings. Consumers are also suffering through a reverse-wealth-effect as stock prices have  dropped and there is concern about home prices.

The stock market is a stronger predictor of broader household spending a year out than the consumer expectations index. A sanity check tells you that this just isn’t right – this is not the worst economy in 70  years! But, negative sentiment may mean that consumers are unwilling to spend down their excess savings. 


  • The economy looks resilient and inflation is coming down. We added 372K jobs (estimate was 250K). Wage growth dropped from 5.3% to 5.1%.
  • The 10-year yield is down to 3.1%.
  • The S&P 500 is up 6% from its June low
  • A drop in raw-material prices corn, wheat, copper, cotton, lumber, etc. is stirring hopes that a significant source of inflation pressure might be starting to ease. Oil and natural gas prices have dropped recently.

The Fed

The Fed is willing to have a small recession now in order to avoid a situation in which expectations change and the Fed has to raise rates significantly in the future. The economy has suffered several shocks: pandemic disrupted supply chains, aggressive stimulus affected bottlenecks, and Russia’s invasion.


  • The FOMC minutes indicated that officials agreed that they need to raise rates above the neutral rate if inflation doesn’t abate.
  • The Fed is still on track to raise rates 75 bps in July. The jobs report didn’t change that.
  • There is hope for lower inflation resulting from lower commodity prices and the shift from goods to services.


The typical U.S. household will spend an additional $400 on its mortgage payment each month than it would have in January. This is based on a median household income family purchasing a median house. In April, they would have needed 41.2% of their income to cover monthly mortgage payments.


  • According to NAR, the typical monthly mortgage payment was $1,842 in May, up from $1,297 in January and $1,220 in May 2021
  • The number of active listings in June was 34% lower than June 2020 and 53% lower than June 2019.

Food Prices

Governments around the world are rushing to cushion the blow of food and energy inflation, launching new subsidies and boosting social-spending programs. Food is a larger part of household spending in poorer countries. It is 59% in Nigeria and 28% in Mexico. For the lowest income quintile of Americans, it’s 27%.