Hiring slowed sharply in August but remained sturdy as employers added 315,000 jobs despite softer consumer spending gains, rising interest rates and a sputtering economy. The unemployment rate rose from 3.5% to 3.7%. In his speech at an annual symposium in Jackson Hole, Fed Chair Jerome Powell said that the U.S. economy will likely experience some “pain” as the central bank continues its battle with inflation. A strong job market is what he was talking about.
But, there are signs that sky high inflation is cooling off and wage growth appears to be falling off as well. The CPI reading for August to be released on Sep 13 will be one that everyone on Wall Street will be looking for as a sign that inflation is falling as a result of the hike in interest rates. If inflation stays above 8% but lower than the 8.5% reading in July, that would send the message that the economy is still hot—but not blistering. If it drops below 8%, Wall Street would interpret it as a sign that combination of higher rates, slower growth and softer employment could ultimately result in a soft landing.
Future Wealth’s View
In his speech at Jackson Hole earlier this week, Jerome Powell referenced the famous inflation slayer of the 1980s – Paul Volker, saying that the part of the equation in anchoring price stability was to also break the grip on inflationary expectations. But, economic conditions are not the same as they were in the ‘80s. In fact, the whole premise of looking back on similar events and using the same playbook is totally flawed. It is a bit like our grandpa and grandma saying that they never had sex till they got married. It may be quaint and cute but does it really reflect the realities of the world today?
One thing is certain for investors – looking at the performance of their portfolio so far this year and trying to make sense of the decline in marquee stocks that are down 20%, 30% or 50%, is simply not rational. Instead, the smart course of action is to take the time to understand every investment in one’s portfolio and determine if it really belongs there long term. If you bought a stock on a whim at a certain price with no fundamental analysis, it is time to revisit that purchase. If you believe strongly that a stock you bought was based on thorough research and it is down ~30% and the basis of your initial investment has not changed, then have the courage to buy some more next week.
There is a saying on Wall Street – “In a bull market, everyone is a great stock picker. It is in a bear market that the men are separated from the boys”.