Weekly Update August 1: Click here to read A Slower Pace Going Forward?

Dear Friends,
The Federal Reserve ended its two-day Federal Open Market Committee meeting last Wednesday, and the outcome was broadly in line with market expectations. As expected, the Committee raised short-term interest rates by 75 basis points (0.75%) to take the fed funds rate to 2.5%.
Market volatility will likely remain elevated until the Fed starts to slow the pace of rate hikes. Until then, there could be some more financial tightening in the pipeline from the hikes that have already been made but maybe haven’t taken full effect yet throughout the economy.
The next FOMC meeting is not until September and the Fed will have two more inflation prints to mull over when deciding the next rate hike. The recent negative -0.9% annualized 2Q GDP print certainly puts the Fed in a difficult position and may make a softish landing that much more difficult to achieve.
Although Wednesday’s rate hike marks the latest move in the Fed’s efforts to tamp down the strongest inflationary pressures in roughly four decades, markets jumped after the increase was announced. The Dow Jones added more than 450 points and the tech-heavy Nasdaq Composite surged 4%. The chart below historically shows even after fed rates increase, the markets perform well overall.

We will be monitoring earnings results this week, but so far so good, for clues about how companies are navigating decades-high inflation. Regardless of how markets react during the short term, we remain optimistic as we now suspect the market is bearishly positioned.
Please reach out with any questions.

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