August 2022 in Review

by Daniel Zeigler, CFP®, CMFC®, Senior Portfolio Manager

Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager. Today I just wanted to take a few minutes to give you an update on the markets for the month of August.

After a strong rebound in stock prices for the month of July, unfortunately, U.S. stocks reversed gains from July, mainly led by technology companies. The NASDAQ Composite Index was down close to 4.5% for the month, followed by the S&P 500 Index which was down close to 4% and remains down about 15.5% for the year.

The overall bond market did not fare much better in August. The Barclays Aggregate [Bond] Index was down close to 2.5% for the month and is down close to 10% for the year. The 2-year Treasury is at a 15-year high, with yields around 3.5% and the 10-year Treasury is around 3.2%.

Much of the rally in stocks that took place over the last two months following June lows was based on optimism that inflation is beginning to fall and the belief that the Fed would soon end its rate hiking cycle and maybe pivot sometime in 2023. Unfortunately, in Jerome Powell’s latest speech at Jackson Hole, the Fed’s number one focus is to get to their long-term inflation target to 2%, which likely means higher rates for the foreseeable future. The market expects the Fed to increase rates by at least 50 basis points at their meeting in September and they’re expecting a Fed Funds rate between 3.50 – 3.75% by the end of the year.

The higher interest rates seem to have cooled the housing market, as the average 30-year mortgage rate is now close to 6%. The next step for the Fed is to try and cool the job and wage market. So far, the job market has been resilient as there remain about 11.2 million job openings, which is nearly double the available workers. Investors will also be closely watching Friday’s nonfarm payrolls, which economists are expecting the economy to add about 318,000 workers and for the unemployment rate to stay the same at 3.6%.

Stock market volatility may continue into September, which historically has been one of the worst months for stocks. The market will be closely tracking the health of the jobs market, inflation, geopolitical risk, mid-term elections, and signs that the Fed may be getting closer to a Fed Funds neutral rate. Our investment team continues to monitor all economic data and make tactical adjustments in all asset classes as we continue to assess risk and look for long-term opportunities. We continue to be long-term investors in this market and investors should continue to stick to an appropriate diversified long-term investment strategy.

As always, if you have any questions or want to speak to someone, please do not hesitate to reach out to us. Thank you and I hope everyone has a great Labor Day weekend!