August 2022 PDS Planning Market Commentary

The dog days of summer are upon us, which means it’s probably hot and humid, teachers and students are getting ready for the new school year, and investors are historically treading water. Since 1980, the S&P 500 during the month of August has proven to be a lackluster month, with average returns being -0.15%. But investors can take (some) solace in the near +14% gain the S&P 500, +19% gain in the Nasdaq, and +11% gain in the Dow since June 17th.

This morning the Consumer Price Index [CPI] data for July was released and we were greeted with not bad news – inflation has started to take a breather. It’s still significantly elevated on a year-over-year view, up 8.5% since July 2021, but the easing of food and energy prices helped keep it from climbing even higher.

Consumer price index 12 month change chart

In other related news, the unemployment rate fell to 3.5% after adding 528,000 new jobs in July, matching the lowest rate in the last 50 years. Jobs are available to most people who are looking, but the wage growth hasn’t been enough to offset the impact of inflation. Additionally, the strong hiring numbers around the country are helping to put more money in the pockets of consumers, driving demand for most goods and thus prompting companies to continue raising prices. Try as we might, inflation keeps rearing its ugly head. Liz Ann Sonders with Charles Schwab agrees, ”a still-hot labor market alongside strong wage growth (albeit negative when adjusting for inflation) suggests inflation won’t come fully off the boil until sufficient labor market slack is seen for a sustained period.”

Though unemployment is a strong 3.5%, the whole labor market may not be as strong as the number suggests. In July, the labor force participation rate – the sum of all hired workers and those that are unemployed by actively looking – fell to “its lowest level since last December”, says Liz Ann Sonders. This indicates a number of unemployed people have stopped looking and left the workforce. At the same time, the number of unemployment claims are continuing to increase from March lows, job openings have started to decrease, and job cuts are up meaningfully from their 2021 lows (most notably in the tech sector).

At this point, we’re no longer strangers to market volatility. News of all kinds is making headlines – good and bad – and we’re reminded the importance of staying invested within a diversified allocation as the tides continue to change.

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