UGLY INFLATION NUMBERS: The Consumer Price Index rose by 1.3% in June, the largest monthly increase since Hurricane Katrina.  The overall 12-month inflation number now stands at 9.1%, an ugly number.  Gasoline, shelter and food were the largest contributors.  The energy index rose 7.5%.  Gasoline rose by 11.2%, now up 60% for the year.  Food rose by 1.0%.
(Source: bls.gov/news.release/cpi.nr0.htm)

WHAT HAPPENS NEXT WITH INFLATION?: There are a couple of wildcards out there.  First, what will the Russian government do after Gazprom’s (natural gas pipeline) regularly scheduled maintenance is supposed to end on July 22?  Second, will the Chinese regime continue to impose draconian lockdowns to stop COVID?  Aside from these unknowns, there is some news that seems to indicate inflation will begin to ease.  Prices of commodities such as corn, wheat and copper have already come down significantly.  Retailers have too much inventory and discounts and sales have already begun. Wage growth is slowing across the economy after the big spike in late 2021.  These all take a while to play out, so if we get some negative wildcards, the easing may take its time.  And now, of course, the debate rages over whether the Fed’s next interest rate increase will be 0.75% or 1.00%.

U.S. CONSUMER STILL SPENDING:  Retail spending in the U.S. increased by 1.0% in June.  For the year, retail spending is up 8.4%.  This news helped stock prices to end on a high note on Friday.
(Source: census.gov/retail/marts/www/marts_current.pdf)

FRIDAY’S BOUNCE NOT ENOUGH:  The steady drumbeat of inflation and recession concerns led to four days of market declines, and then came Friday.  Better-than-expected earnings reports from Citigroup, Wells Fargo, U.S. Bancorp and UnitedHealth Group pushed those stocks up significantly, helping stocks to rally, and the rally continued on news of healthy U.S. consumer spending in June.

LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  

CHINESE ECONOMY TAKING A HIT:  With the severe lockdowns, it came as no surprise that the Chinese economy slowed last quarter.  Compared to the first quarter of the year, the Chinese economy slowed by 2.6%.  It’s overall economy expanded by just 0.4%, the slowest since the first quarter of 2020 when the pandemic first hit.  Shanghai residents were essentially confined to their homes for two months and many businesses closed as the government tried to stop the spread of COVID.  The lockdowns were also applied on China’s coast disrupting car factories and farming.  The restrictions have since eased.

TRADING BELOW CASH?:  The Russell 3000 is an index of the entire U.S. stock market, tracking the performance of the 3,000 largest U.S. traded stocks.  In a recent article published on the Bloomberg site, it was reported that the number of Russell 3000 companies (excluding financial firms) that are trading “below cash” has surpassed the record set during the global financial crisis.  167 companies had market capitalizations that were below the amount of the firm’s cash holdings.  That list included three major airlines.  The record was 165 set in 2009.  

IMPACT INVESTING:  We recently did a webinar on impact investing, and we got a nice write up about it in Philanthropy Daily.  You can read about it here.

THE PASSION OF A TEACHER AND JIM THORPE:  Great teachers can make a lasting impression.  In 11th grade, I had to take a history elective.  There was a course called “Twenties and Thirties.”  It was a U.S. history course about those two decades.  The teacher obviously offered the course because he loved the subject, which of course made his students love it.  I still remember much about that class.  One person we studied was Jim Thorpe, a native American and perhaps the greatest athlete of all time.  I was very interested to read this week that Jim Thorpe’s gold medals from the 1912 Olympic Games in Stockholm were finally reinstated.  Jim Thorpe easily won gold in the Decathlon and Pentathlon, but was stripped of them because he had played semi-pro baseball a few summers before.

I HAVE MY LIMITS:  I was helping my son Logan with some work around his home this weekend.  We were doing separate jobs, but at one point he asked me to hold a ladder while he did some work.  As I came to where he was working, I told him I’d be happy to help, but “you’ve got to turn off that music.”  I won’t tell you what kind of music it was, but suffice it to say there is one kind I just have never been able to take.  I won’t mention it here in case it is your favorite type of music.

Have a great week!

“I learned that courage was not the absence of fear, but the triumph over it.  The brave man is not he who does not feel afraid, but he who conquers that fear.”  Nelson Mandela

“Therefore encourage one another and build one another up, just as you are doing.” I Thessalonians 5:11 (ESV)
 

SOURCES: 
WHAT HAPPENS NEXT WITH INFLATION: https://www.wsj.com/articles/falling-commodity-prices-raise-hopes-that-inflation-has-peaked-11656811949?mod=article_inline AND theovershoot.co/p/inflation-isnt-getting-better-yet
FRIDAY’S BOUNCE NOT ENOUGH:  wsj.com/articles/global-stocks-markets-dow-update-07-15-2022
CHINESE ECONOMY TAKING A HIT: abcnews.go.com/International/wireStory/chinas-economic-growth-falls-04-amid-virus-shutdowns AND wsj.com/articles/china-set-to-post-the-slowest-growth-in-two-years-on-zero-covid-policy
TRADING BELOW CASH?:  bloomberg.com/news/articles/2022-06-16/number-of-underwater-russell-3000-stocks-surges-to-record
 

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*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets. 
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States. 
*Bloomberg Barclays U.S. Aggregate: This is a measure of the U.S. bond markets.