This week, Bradley Johnston, CFP®, ChFC®, MSBA, discusses the current state of inflation, including the Fed’s latest remarks, the likelihood of another 75 bps jump in interest rates, and the latest on investor sentiment.


Welcome to the Weekly Market Update! There is so much to unpack on the economy and markets this week. Let me get straight to it.


Fed Chair Powell’s tough talk last week in Jackson Hole is still reverberating across the markets ahead of Friday’s jobs report. He emphasized the Fed’s resolve in fighting inflation even if it brings some pain to households and businesses. This means the Fed is willing to let the economy land on a hard surface and bear the unintended consequences of reducing inflation. We see it as a better of two evils – failure to restore price stability would mean far greater pain. The Fed is trying to avoid the failed inflation-fighting policies of the 1970s when the central banks prematurely loosened the policy to shore up growth. As a result, we can expect that the Fed will continue raising rates and hold them at a higher level until it is confident that inflation is under control, even if unemployment rises.

The stage has been set for Fed to raise rates by 0.75 points at their next meeting, Sept 20-21. The rise in interest rates is targeted to slow the economy’s growth by reducing investment, spending, and hiring. Looking ahead to the August inflation report, declining gasoline prices and lower airline fares should provide additional relief. Still, the rest of 2022 could be mixed with natural gas prices rising and higher wages putting a floor underneath inflation.

Investor sentiment can shift rapidly based on how they perceive the economy and how economic news is spun. The San Francisco Federal Reserve tracks the Daily News Sentiment Index, which measures economic sentiment based on lexical analysis of economics-related news articles from 24 major US newspapers. Higher values indicate more positive sentiment and lower values more negative sentiment. This indicator suggests sentiment is currently negative, though still well above the low points seen at the outset of the COVID pandemic, financial crisis, dot-com bust, and other recession periods.


After a slight decline in July CPI data, markets expected a less aggressive stance on rate hikes. Instead, the chairman’s latest remarks put to bed this idea. The Fed’s telegraphed message didn’t bode well with the markets. Stocks and bonds sold off indiscriminately this past week; the S&P and large cap growth stocks gave up about 4 to 4.5%, and the aggregate bond market index lost 0.36%. The S&P 500 Index is down about 14% for the year thus far. The tech-heavy NASDAQ and large-cap growth stocks took the brunt of an ongoing market correction, down about 21%. The 10-year Treasury bond yields increased slightly to 3.04% from 2.98% a week ago.

The inflation expectations over the next 12 months dropped below 3% from the recent highs of 4.5%. This could be good news if you are worried about inflation on your household budget.

What does it all mean

So, what does it all mean? While we see inflation expectations going down in the coming year, the market volatility is rising. We expect stocks to continue to exhibit higher volatility and test lower bounds in the short term.  We will continue to monitor if the Fed prioritizes controlling inflation over economic growth, as it could benefit value and international stocks over growth and US stocks down the road.  On the other hand, a more moderate pace of tightening could see the opposite hold true.  August jobs report can provide additional data points on the next course of the Fed’s decision in the next committee meeting and the market’s reaction.

We will be off the air next week as we travel to Kansas City to attend CONNECT22 – a symposium for our clients. We hope to see some of you in person and attend the event. The week after, our CIO, Ramesh Poola, will join and discuss the August employment data and the markets. I wish you all a great labor day weekend!

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    This week, Gabe Adams, CFP®, MSPFP, discusses two important recent developments in Washington: passage of the Inflation Reduction Act and the President’s recent announcement on student loan forgiveness.

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  • August 19, 2022

    In this week’s update, our new Chief Investment Officer, Ramesh Poola, Ph.D., CFA®, shares the latest news on inflation and touches on the recently passed Inflation Reduction Act (to be elaborated on next week).

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  • August 12, 2022

    In lieu of our Weekly Market Update, Christian Reilly shares a video memorial he made for Tom Weary, CFA®, filled with sage words of wisdom from Tom himself.

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