August 2022 Investment Commentary

The Markets (as of market close August 31, 2022)
Through the first half of August, the stock market continued to ride July’s rally. Including the
first two weeks of August, stocks had posted four consecutive weekly gains — the longest weekly
rally of 2022. The latest inflation data showed prices had fallen in July, bolstering investor
confidence that the Fed may begin to reel in its aggressive interest-rate hike policy. By
mid-August, the S&P 500 had recouped half of its losses from the beginning of the year, and the
Nasdaq had risen over 20.0% from its low in June. U.S. corporate profits rose 9.1% to a fresh
record high of $2.62 trillion in the second quarter of 2022, following a 4.9% drop in the previous
period. It appeared that even if the Fed continued its hawkish push to get inflation down to the
2.0% target, the economy had thus far been resilient, with the labor market continuing to show
strength, while industrial production advanced.

Despite these developments, Federal Reserve officials maintained their hawkish rhetoric. Then the
stock rally of the summer of 2022 came to an abrupt end. First, the release of the minutes of the
July meeting of the Federal Open Market Committee, revealing that several Committee members were
concerned that inflation remained unacceptably high, and that, despite declines in oil and some
commodities, there was little evidence to date that inflation pressures were subsiding. Then Fed
Chair Jerome Powell spoke before the Jackson Hole Economic Symposium and reiterated the Fed’s
resolve to stamp down inflation, even if that means slower economic growth and “some pain on
households.” Investors reacted by pulling from equities, sending stock values lower, while giving
back gains enjoyed earlier in the month. Each of the benchmark indexes ended August in the red, led
by the tech-heavy Nasdaq, followed by the S&P 500 and the Dow.

Bond prices also fell in August, pushing yields higher. Ten-year Treasury yields rose nearly 50
basis points in August. Two-year Treasury yields were about 33 basis points higher, resulting in an
inverted yield curve, which may be an indicator of a recession. The dollar rose higher against a
basket of world currencies. Gold, like most other commodities, slid lower in August.
Crude oil prices declined for the third consecutive month in August, as rising inflation has cut
into consumer spending, weakening demand. Gas prices also continued to fall in August after
reaching record highs in May and June. The national average retail price for regular gasoline was
$3.827 per gallon on August 29, down from $4.330 on July 25 but $0.688 higher than a year ago.

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