Skip to content
Laird Norton Wealth Management
  • Services
          • Wealth Planning
            • Business Owner
            • Equity Compensation
            • Estate Strategies
            • Philanthropic Giving
            • Tax Strategies
          • Investment Management
            • Tax-Aware Investing
            • Risk Management
            • Alternatives & Private Market
            • Impact Investing at LNWM
          • Trust Services
            • Beneficiary Services
            • Family Legacy
            • Trust Administration
            • Trust Benefits
            • Understanding Trusts
          • NonProfit Clients
            • Request RFP Participation
  • About
          • About LNWM
            • Fiduciary Financial Advisor
            • How We Help
            • Our Team
            • Corporate Social Responsibility
            • Careers
            • Community
            • Board of Directors
            • FAQs
        • two people in a kayak on water
  • Insights
        • Blog

          Top-of-mind at LNWM and elsewhere.

          Papers

          Expert insights and analysis.

          Videos

          See what we're up to.

          Media

          Our published work and media coverage.

  • Contact
Search Icon
Client Login
mobile-login

Home » Insights » Investment Management » Economic Flash: Job Market Is Key to What Happens Next

subway

Economic Flash: Job Market Is Key to What Happens Next

David Baker | Economic Flash | July 7, 2022 (August 3, 2022)

July 2022

US Economy: Inflation stings.

Despite some bright spots, including the still strong US labor market, weakening across manufacturing, real estate and consumer spending indicated the growth-throttling impact of inflation and Fed tightening: Mortgage applications and home sales fell in June, as consumer sentiment hit an all-time low (50.0) and retail sales slowed (-0.3).

US Stocks: Earnings a concern.

US equities stabilized in the 2nd half of June but finished down to nearly match the worst monthly return for 2022. Earnings growth has cooled and forward earnings guidance has turned generally negative. With a potential recession top-of-mind for investors, commodity-sensitive energy (-16.8%) and materials (-13.9%) were the weakest sectors.

Foreign Stocks: China rebound.

Emerging market stocks were buoyed somewhat by a rebound in China (+6.6%), following its emergence from Covid lockdowns and less concern about a crackdown on tech companies. China is the only major economy globally implementing pro-growth policies such as tax cuts, infrastructure spending and lower interest rates.

Fixed Income: Fed tightens more.

The Fed surprised markets by raising its key interest rate 75 basis points, with more such increases possible. After the Fed announcement, the 2-year US Treasury yield surged from 2.5% to 3.5% before falling back to 2.9%. That rates came back down suggests investors believe the Fed will get inflation under control, even at the cost of recession.

Real Assets: Commodities dive.

On recession concerns, commodities were the worst-performing sector across financial markets and the real asset category. Losses were broad with industrial metals, energy and agricultural commodities falling 16%, 15% and 9%, respectively. US gas prices remain elevated but are down 15 cents from the mid-June high of $5.47/gallon.

Alternatives: Softening the blow.

Hedge fund exposures have continued to benefit portfolios by dampening losses. That said, 2022 has been a modest reprieve for managed futures strategies, which generally benefit from persistent market trends in a broad array of commodity and financial derivatives. Such strategies may struggle (and generally have) for years before posting an outsized gain.

Equities Total Return

JUN YTD 1 YR
U.S. Large Cap (8.3%) (20.0%) (10.6%)
U.S. Small Cap (8.2%) (23.4%) (25.2%)
U.S. Growth (7.8%) (28.2%) (19.8%)
U.S. Value (8.8%) (13.2%) (7.5%)
Int’l Developed (9.3%) (19.6%) (17.8%)
Emerging Markets (6.6%) (17.6%) (25.3%)

Fixed Income Total Return

JUN YTD 1 YR
Taxable
U.S. Agg. Bond (1.6%) (10.3%) (10.3%)
TIPS (3.2%) (8.9%) (5.1%)
U.S. High Yield (6.8%) (14.0%) (12.7%)
Int’l Developed (1.5%) (8.8%) (8.9%)
Emerging Markets (0.5%) (3.5%) (2.1%)
Tax-Exempt
Intermediate Munis (0.5%) (5.8%) (5.7%)
Munis Broad Mkt (1.9%) (9.3%) (8.9%)

Non-Traditional Assets Total Return

JUN YTD 1 YR
Commodities (10.8%) 18.4% 24.3%
REITs (7.1%) (19.2%) (5.9%)
Infrastructure (7.7%) (0.5%) 5.6%
Hedge Funds
Absolute Return (0.7%) (0.7%) (1.0%)
Overall HF Market (1.5%) (4.8%) (4.8%)
Managed Futures 2.3% 21.9% 21.5%

Economic Indicators

JUN-22 DEC-21 JUN-21
Equity Volatility 28.7 17.2 15.8
Implied Inflation 2.3% 2.6% 2.3%
Gold Spot $/OZ $1807.3 $1829.0 $1770.1
Oil ($/BBL) $114.8 $78.0 $75.1
U.S. Dollar Index 120.6 115.8 111.2

Glossary of Indices

Our Take

The first half of 2022 was one of the worst starts of the year in stock market history. The high-profile stocks of the pandemic era, including Netflix, Nvidia, Meta, are each down more than 45% in the past six months. In fact, 40% of the drop in the S&P 500 in the first half was due to the 10 largest stocks on the index, highlighting both the value of diversification and how yesterday’s winners can turn into losers as the market expectations change.

Investors’ focus has shifted over the last few months from the causes of inflation (tight labor markets and supply chain shocks, loose monetary policy and government spending) to the impact of inflation on US consumers. The data on that front do not paint a rosy picture. As noted earlier, inflation and the Fed’s response have started to take a toll on consumer spending. Even potential positives, such as falling real estate prices, are not likely to make housing more affordable given the highest mortgage rates since the 2008 global financial crisis and low vacancy rates driving up rents.

Looking Ahead

We would not be too surprised if the US economy is actually in the midst of a recession, given that 1st quarter GDP shrank and could also be negative for the 2nd quarter (recession is defined as two consecutive quarters of negative GDP growth). The severity of recessions can and does vary, notwithstanding the deep downturns that followed the bursting of the Internet (2000) and real estate bubbles (2008). In any case, recessions are a natural part of the business cycle, have lasted historically (since World War II) less than a year, and aren’t necessarily marked by long-lasting negative returns in the stock market. Over the last 100 years, the equity market has peaked around six months before a recession began, as recessions are typically priced in before we even get there.

If not recession, we could be facing stagflation in the near term. Two of the three elements of stagflation are already in place — relatively high inflation and low GDP growth – but fortunately we do not yet have rising unemployment. We are long-term investors who structure portfolios to navigate through full economic cycles, both expansionary and recessionary. If stagflation does turn out to be the path, with a higher demonstrated correlation to inflation, real assets are likely to remain a core component of our positioning. Within equities, our managers are likely to become more defensive, focused on essential goods and services that consumers buy even when they cost more.

  • Share:

David Baker

David is Senior Director, Investment Strategy and Communications. at Laird Norton Wealth Management. While his focus is mainly on the numbers, David also writes the firm’s monthly Flash report, and he is a key contributor to LNWM’s quarterly investment outlooks.

Sign Up For Monthly Economic Flash

Find out how all major financial markets are performing and why.

Site Logo in footer footer logo
facebook Twitter Opens a news tab Linkedin Opens a news tab Youtube Opens a news tab

About

  • Board of Directors
  • Careers
  • Community
  • Contact
  • FAQs
  • Our Team
  • Sign up for Navigator

Services

  • Investment Management
  • Sustainable Investing
  • Tax Strategies
  • Trust Services
  • Understanding Trusts
  • Wealth Planning

Address

  • Laird Norton Wealth Management 801 Second Avenue, Suite 1600 Seattle, WA 98104 United States
  • 206.464.5100
  • 800.426.5105
© 2023 Laird Norton Wealth Management. All rights reserved.
Form CRSOpen PDF in a new tab Legal Terms and Conditions Privacy Policy
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to customize your settings.
Cookie SettingsAccept All
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-advertisement1 yearSet by the GDPR Cookie Consent plugin, this cookie is used to record the user consent for the cookies in the "Advertisement" category .
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
CookieDurationDescription
__cf_bm30 minutesThis cookie, set by Cloudflare, is used to support Cloudflare Bot Management.
bcookie2 yearsLinkedIn sets this cookie from LinkedIn share buttons and ad tags to recognize browser ID.
bscookie2 yearsLinkedIn sets this cookie to store performed actions on the website.
langsessionLinkedIn sets this cookie to remember a user's language setting.
lidc1 dayLinkedIn sets the lidc cookie to facilitate data center selection.
UserMatchHistory1 monthLinkedIn sets this cookie for LinkedIn Ads ID syncing.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
CookieDurationDescription
_uetsid1 dayBing Ads sets this cookie to engage with a user that has previously visited the website.
_uetvid1 year 24 daysBing Ads sets this cookie to engage with a user that has previously visited the website.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
CookieDurationDescription
_ga2 yearsThe _ga cookie, installed by Google Analytics, calculates visitor, session and campaign data and also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognize unique visitors.
_gcl_au3 monthsProvided by Google Tag Manager to experiment advertisement efficiency of websites using their services.
_gid1 dayInstalled by Google Analytics, _gid cookie stores information on how visitors use a website, while also creating an analytics report of the website's performance. Some of the data that are collected include the number of visitors, their source, and the pages they visit anonymously.
_hjAbsoluteSessionInProgress30 minutesHotjar sets this cookie to detect the first pageview session of a user. This is a True/False flag set by the cookie.
_hjFirstSeen30 minutesHotjar sets this cookie to identify a new user’s first session. It stores a true/false value, indicating whether it was the first time Hotjar saw this user.
_hjIncludedInPageviewSample2 minutesHotjar sets this cookie to know whether a user is included in the data sampling defined by the site's pageview limit.
_hjIncludedInSessionSample2 minutesHotjar sets this cookie to know whether a user is included in the data sampling defined by the site's daily session limit.
_hjTLDTestsessionTo determine the most generic cookie path that has to be used instead of the page hostname, Hotjar sets the _hjTLDTest cookie to store different URL substring alternatives until it fails.
_omappvp11 yearsThe _omappvp cookie is set to distinguish new and returning users and is used in conjunction with _omappvs cookie.
_omappvs20 minutesThe _omappvs cookie, used in conjunction with the _omappvp cookies, is used to determine if the visitor has visited the website before, or if it is a new visitor.
calltrk_session_id1 yearThis cookie is set by the Provider CallRail. This cookie is used for storing an unique identifier for a user browser session. It is used for tracking the number of phone calls generate from the website.
vuid2 yearsVimeo installs this cookie to collect tracking information by setting a unique ID to embed videos to the website.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
CookieDurationDescription
_fbp3 monthsThis cookie is set by Facebook to display advertisements when either on Facebook or on a digital platform powered by Facebook advertising, after visiting the website.
_mkto_trk2 yearsThis cookie, provided by Marketo, has information (such as a unique user ID) that is used to track the user's site usage. The cookies set by Marketo are readable only by Marketo.
fr3 monthsFacebook sets this cookie to show relevant advertisements to users by tracking user behaviour across the web, on sites that have Facebook pixel or Facebook social plugin.
MUID1 year 24 daysBing sets this cookie to recognize unique web browsers visiting Microsoft sites. This cookie is used for advertising, site analytics, and other operations.
test_cookie15 minutesThe test_cookie is set by doubleclick.net and is used to determine if the user's browser supports cookies.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
CookieDurationDescription
_ce.gtldsessionNo description
_dc_gtm_UA-41670453-11 minuteNo description
_hjSession_275188330 minutesNo description
_hjSessionUser_27518831 yearNo description
AnalyticsSyncHistory1 monthNo description
BIGipServerab10web-nginx-app_httpssessionNo description
BIGipServerab47web-nginx-app_httpssessionNo description
calltrk_landing1 yearThis is a functionality cookie set by the CallRail. This cookie is used to store the landing page URL. It helps to accurately attribute the visitor source when displaying a tracking phone number.
calltrk_nearest_tld9 years 10 months 8 daysNo description
calltrk_referrer1 yearThis is a functionality cookie set by the CallRail. This cookie is used to store the referring URL. It helps to accurately attribute the visitor source when displaying a tracking phone number.
CookieLawInfoConsent1 yearNo description
li_gc2 yearsNo description
SAVE & ACCEPT
Powered by CookieYes Logo