Welcome back to the Monthly Market Wrap from YCharts, where we review and break down the most important market trends for advisors and their clients every month. As always, feel free to download and share any visuals with clients and colleagues, or on social media.
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The US treasury yield curve inverted across multiple spreads as of the end of July. Rates on the 1-Year and 6-Month T-Bills were higher than those on the 2-Year, 3-Year, 5-Year and 10-Year Notes. These two short-term instruments also topped 3% for the first time since January of 2008, continuing their rapid rise as the Federal Reserve hikes its key interest rate at a historic pace. Finally, July saw long-term interest rates decline in several regions across the globe, in addition to North America.
The one thing these three yield spreads have in common? Looking back to 1982, all three of these spreads turned negative before or during a recession. The only exception was the 30 Year-6 Month spread, which fell as low as 5 basis points in August 2019 before the recession of 2020. But having inverted in July 2022 along with the 10 Year-6 Month, is any sort of prolonged recession lingering around the corner?
In July, both Value and Growth stocks made significant jumps higher and the iShares Russell 1000 Value ETF (IWD) is now down just 1.7% over the last twelve months, thanks to a 6.6% gain in July alone. Its Growth (IWF) counterpart rose 12.1% in July and exited bear market territory as a result.
After declining for the first time in five months, US Retail and Food Services Sales rebounded in June and rose 1%. On the manufacturing front, June’s US ISM Manufacturing PMI reading slipped 0.2 points to 52.80. The ISM Manufacturing PMI has fallen six full points YTD, but levels above 50 are still considered expansionary. Lastly, Real GDP data showed the US economy contracted by 0.9% in Q2 2022. This marks the second consecutive quarter of declining GDP and the technical definition of a recession.
The US Inflation Rate topped 9% last month for the first time since November 1981. June’s inflation figure of 9.06% represented a monthly increase of 0.48 percentage points. However, US Core Inflation, which excludes food and energy costs, declined for the second consecutive month to 5.92%. Prices increased at the fastest clip since September 2005, with the US Consumer Price Index rising 1.32%. Finally, personal spending was up 1.07% in June.
The spot price for WTI crude was under $100 per barrel as of July 25th, while the price of Brent declined 9.7% in July. The fall in oil prices translated into some relative savings at the pump. The average price of regular gas fell to $4.44 per gallon and $5.14 per gallon for premium as of July 25th. Still, the average gallon of regular gas is 28% more expensive compared to the start of the year.