Driving financial news: Tech earnings, the Fed’s post-meeting chatter, energy crisis and inflation rising in Europe.
More tech earnings beating expectations. Bloomberg reported that “Alphabet Inc., Microsoft Corp. and Texas Instruments Inc. posted double-digit quarterly revenue growth …and expressed optimism about the coming months… Microsoft gave an encouraging sales forecast for the current fiscal year, soothing fears that the strong US dollar and a weakening economy would ravage sales. Chip manufacturer Texas Instruments also offered a bullish forecast, indicating that sales and profit this quarter would likely exceed Wall Street estimates. And Alphabet, the parent company of search giant Google, managed to post advertising revenue that surpassed analysts’ expectations.”
Apple beat expectations on revenue, profit and earnings, and its management appears to be upbeat on its prospects.
Limited positive earnings data does not necessarily change expectations of an economic slowdown, which appears more likely based on the preliminary 2Q22 preliminary GDP reading reporting an annualized decline of 0.9%, following a 1.6% contraction in 1Q22.
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Many economic participants generally consider a two-consecutive quarter contraction in GDP to be at least a solid indicator of a recession, despite an attempt by the Biden administration to soften the traditional view point. While the formal definition of a recession will continue to reside with the National Bureau of Economic Research (NBER), every time since 1984 that GDP has fallen for at least two straight quarters, the NBER ultimately has declared a recession. Time will tell.
The GDP report served as a confirmation of sorts to other economic cracks which have started to form, including the slowdown of consumer spending which grew at a 1% annual rate in the second quarter, down from 1.8% in the first quarter as inflation pressure continued to fester.
This mirrors cooling in the housing market, with sales of previously owned homes falling 5.4% in June marking a fifth straight month of declines catalyzed by rising mortgage rates.
Fed bang on expectations. The Fed raised rates, and signaled it is ready to take the pain – it is already expecting the economy to soften and maybe even enter a period of negative growth, but it will proceed regardless. The 75-basis point move found broad support and was highly anticipated, but investors interpreted more dovishly than expected.
10-yr yields are pricing in a recession and so are equity markets, which rallied on the back of Powell’s sentence about potentially changing monetary policy course if there is a recession. Powell also said the Fed is angling for growth to slow down as the only way to tame inflation, while saying “we’re not yet in a recession”.
PCE Numbers were released Friday morning, inching up to 6.8% in June from 6.3% in May. Both headline and core PCE slightly beat expectations – if ever so slightly – a sign that inflation remains elevated despite declining energy prices and the ongoing economic slowdown.
Unemployment data in focus. Employment numbers (coming out on August 5) will likely be on investor radars, as will be wage growth.
Going forward, public markets are likely to continue to struggle for direction (amidst a tug of war between inflation and recession), but appear to have bottomed. Markets are on average up 1% during recessions historically.
Europe in crisis. Europe agreed on an energy saving mechanism, with some exceptions carved out for countries that have consumed less gas or have no alternative sources. Eurozone inflation hit 8.9% in July, above expectations, according to the latest estimates.
Yieldstreet continues to offer private market investment opportunities as investor sentiment appears to be marginally improving, which may bring increased inflows into both public and private markets.
This past week, Yieldstreet launched Supply Chain Financing I.T, which gives investors a short maturity opportunity in a financing facility provided to a global conglomerate in the consumer goods industry. Also launched this week was Real Estate Opportunity Fund II, a fund under the management of Harbor Group International, which aims to generate 10-12% in annualized returns via a portfolio diversified across property and investment types, and geographies.1
1 Target returns are offered as opinion and are not referenced to past performance. Target returns are not guaranteed and results may differ materially.
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