The Week In Review: June 26 – July 2

After locking in solid gains the previous week, markets headed the wrong direction last week over increased worries the Federal Reserve’s inflation battle would push the U.S. into a recession. The concern spiked after Fed Chair Jerome Powell said he was more concerned about the risk of failing to stamp out high inflation than he was about the possibility of raising interest rates too high and pushing the economy into a recession. It seems like Chairman Powell is no longer concentrating on bringing us in for a “soft landing” and instead putting the Fed’s full energy behind bringing down inflation rates.

Economic data also pushed markets down, as much of the data missed consensus expectations, and some signals suggested economic activity may be slowing. Personal consumption expenditures indicated consumers are pulling back, while the consumer confidence index came in significantly lower than anticipated. And consumer sentiment – which weighs Americans’ moods and is often used as an economic indicator – fell to its lowest point on record.

The third reading of first-quarter gross domestic product (GDP) also showed the economy shrank by 1.6% in Q1, slightly larger than the original reading of -1.5%. The Atlanta Fed is estimating second-quarter growth to come in at -2.1%. And if it does, that will make it two consecutive quarters of GDP loss — one commonly accepted definition of a recession. We’ll have to wait until the end of July to get the first reading of Q2 GDP and see if their forecast holds.

Still, some of last week’s data suggested the economy hasn’t completely lost its footing. Durable goods orders for May surprised on the upside, while current factory activity also indicated expansion. We also haven’t seen any big jumps in unemployment numbers; weekly jobless claims came roughly in line with expectations at 231,000, where they’ve been hovering for four weeks.

All the bad news dragged down markets. On Thursday, the S&P 500 officially locked in its worst first half of a year since 1970, losing 20% through the end of June. However, keep in mind that the index was coming down from its all-time high on January 3.