Despite weak results from the tech sector, the S&P 500 Index and Dow Jones Industrial Average posted their biggest weekly gain in a month, while the Nasdaq notched its largest advance since July 8. But, the economy is putting out mixed vibes. One day, an indicator points toward a recession and the next day, we get a stellar jobs report. A week passes and investors get the feeling that there is nowhere to hide as inflation continues to limit consumer spending and the next day, the market begins to rally as businesses begin markdowns and cutting prices of goods and services.

Investing in a choppy environment is never easy and when it follows a once in a lifetime pandemic and its aftershocks, investing becomes extremely difficult.

Future Wealth’s View

The good news is that the US is not in a recession yet. But, a negative second quarter GDP reading, to be released on July 28, following a first quarter GDP of -1.6%, could change that narrative. The real issue at hand is inflation. In his June 29th address, Fed Chair Jerome Powell stated that “I think we understand better how little we understand about inflation”. While it is nice to hear some modesty and humility, it reminds us of Donald Rumseld’s comment on the botched Iraq attack where he famously stated “There are known unknowns and unknown unknowns”.

We put people in power because we expect them to deliver results – not for us to hear nonsensical statements or humble confessions. The fact is that the stock market is totally tied to inflation metrics. If the inflation reading next month drops, Wall Street will celebrate. In fact, the recent rally suggests that Wall Street is expecting a drop in inflation reading from last month’s 9.1%. 

If it goes higher, there will be a bloodbath once again on Wall Street.