Due to a sharp drop on Friday, US markets ended the week in negative territory with the Dow (-0.0%), NASDAQ (-2.6%), and S&P 500 (-1.2%). That ended a 4-week streak of gains. Taxable and tax-free municipal bonds also dropped about 1% for the week, so it was essentially a week of red.
Economic data will be light until the Fed’s next meeting in four weeks, as quarterly corporate earnings season is essentially over. Leading economic indicators (LEIs) for July were at 0.0% year over year. This marks a continued deceleration of LEIs since April 2021. LEIs provide a good measure of where the US economy is going, rather than where we have been. Historically, LEIs have been a very accurate predictor of the US going into a recession, and the trend is certainly pointing in that direction.
About 68% of the US economy is consumer spending, which can be measured in many ways. Last month’s retail sales came in flat relative to the prior month, but because gas prices dropped so much, the consumer spent 0.7% more than the prior month on all other items. On the surface, that sounds good, but here comes some concerning data. According to the NY Fed in Q2, credit card balances saw their largest year over year increase in over 20 years. Outstanding credit card debt increased by $100 billion to $890 billion since last July. Plus, Americans opened 233 million new credit cards during Q2, the most since 2008. Thus, Americans continue their high level of spending, but are using debt to do so, because their wage growth is not keeping up with inflation. This is unsustainable over the long run, so consumers either need to slow down spending (adversely impacting the economy), or we may be kicking a debt problem down the road.
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.