Inflation continues to be a drag on the economy and the Federal Reserve (“Fed”) needs to get past peak inflation to be successful. We saw a slight dip in April’s report to 8.3% when it was hoped that inflation had peaked, but with May’s reported 8.6% inflation it is worrisome that we have not seen a peak yet in rising prices. There is no sure indication of when we will pass the peak as inflation continued to broaden out to apparel, household goods, and food prices this month.
Corporate earnings have held up, but inflation is the main concern as margins are declining. Solid corporate earnings are overshadowed by broader concerns related to inflation and the Fed. The market is concerned that earnings expectations will come down later this year as the Fed becomes more restrictive by raising interest rates and unwinding its balance sheet which could hurt the U.S. consumer. As the Fed continues to get even more aggressive in its battle against inflation, the pathway to a “soft-ish” landing is getting a little trickier to navigate.
Amidst concerns about recession risks, jobs have been a relative bright spot this year. There are approximately two job openings for every unemployed person, though unemployment claims have ticked up in recent weeks (we are keeping an eye on that). Nonetheless, employment readings/conditions remain strong overall which stands somewhat at odds with historical recessionary periods (recessions typically see weak jobs numbers). It is noteworthy that the reported strength in jobs data has been a bit of an outlier relative to other recent economic readings (some of which point to more recessionary conditions).
Have questions? Contact Eric Toole, MBA, CFP at Antares Wealth Management powered by Homrich Berg. He can be reached at firstname.lastname@example.org.