A comprehensive sell-off on Friday, August 26th, following comments by Fed Chair Jerome Powell drove stocks to losses for the week.
The Dow Jones Industrial Average tumbled 4.22%, while the Standard & Poor's 500 dropped 4.04%. The Nasdaq Composite index fell 4.44% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 1.10%.1,2,3
Stocks dropped on Friday following Powell's remarks reiterating the Fed's inflation-fighting resolve. While his comments did not break new ground, markets reacted severely, perhaps on worries that interest rate hikes may continue into next year.
After starting the week sharply lower on renewed rising interest rates and economic slowdown fears, markets staged a modest turnaround beginning mid-week. Stocks rallied on Thursday, sparked by a revised Gross Domestic Product estimate showing the economy's shrinking less than initially estimated. Thursday's rally also got a boost from regional Federal Reserve Bank presidents, who suggested future rate hikes may be in line with market expectations.
Powell at Jackson Hole
In his much-anticipated speech at the Jackson Hole Economic Symposium, Powell unflinchingly reaffirmed the Fed's commitment to raising rates to lower inflation, even if it results in causing pain to individuals and businesses.
Wall Street focused on Powell's presentation in the hope it might provide greater clarity on future Fed direction, though his remarks ultimately went no further than restating past communications. Powell commented, "We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to two percent." This statement may have put to rest any thoughts that the Fed would soon pivot on rate hikes.4
Do you understand why so many of the Market's "eyes" are on the Fed? It is a complicated system that many do not fully understand. For a helpful overview click here to be taken to a great online resource for learning about investments called Investopedia. In addition to the article, there is a helpful video that is just over a minute long. I highly recommend watching the video and reading the article.
In addition to the knowledge you will gain on the subject, if your spouse or a co-worker happens to pass by and see you watching a video about the Federal Reserve System, they will think you are super smart. This is always a bonus!
In my opinion, the Federal Reserve is only half done. Raising interest rates, which have been done this year and may continue into next year - according to Chairman Powell's vague comments at Jackson - can only do so much to curtail inflation. The other lever the Fed can pull is the monetary supply lever - increasing or decreasing the money supply in circulation. To work towards reducing inflation, the Fed will have to reduce the money supply in addition to raising interest rates. This sounds very scientific but the art comes with determining how drastic to reduce the money supply and for how long.
This is where Chairman Powell's comments were most vague. I would expect the Markets to stay volatile until we start to get some more concrete details from the Fed as to their prescribed path forward.
Just like toddlers, the Markets do not like uncertainties.
This Week: Key Economic Data
Tuesday: Consumer Confidence. Job Openings and Turnover Survey (JOLTS).
Wednesday: Automated Data Processing (ADP) Employment Report.
Thursday: Jobless Claims. Institute for Supply Management (ISM) Manufacturing Index.
Friday: Employment Situation. Factory Orders.
Source: Econoday, August 26, 2022
This Week: Companies Reporting Earnings
Tuesday: Best Buy Co., Inc. (BBY), HP, Inc. (HPQ).
Thursday: Broadcom, Inc. (AVGO), Hormel Foods Corporation (HRL).
Source: Zacks, August 26, 2022
"The road less traveled is sometimes fraught with barricades, bumps, and uncharted terrain. But it is on that road where your character is truly tested."
– Katie Couric
How to Check the Status of Your Federal Tax Refund
Filing taxes has become more seamless in recent years due to e-filing. It's also easy to check the status of your refund if you anticipate one. The IRS has a tool called Where's My Refund? where taxpayers can check the status of their refund within 24 hours of the IRS acknowledging the taxpayer's e-filed return. You can also see a personalized refund date after the return is processed.
You can access the tool online on the IRS website or via their app. You will see three phases: return received, refund approved, and refund sent. The IRS recommends setting up direct deposit to receive your refund even faster. They update the tool once a day.
* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov5
Channel Your Inner Cat and Cow
The cat-cow stretch is fantastic for your back, pelvis, neck, and more. Plus, it's simple to learn and simple to do!
First, start on the floor on all fours. Your hands should be shoulder-width apart, and your knees should be hip-width apart. You can do the cat-cow stretch on a mat or carpeted floor.
Next, inhale a deep breath, arch your back, tilt your pelvis downward, and look to the ceiling. Don't force your neck too far up.
Then, exhale a big breath and curve your back (like a scary Halloween cat). Tuck your chin into your chest and pull your pelvis up as you curve your back.
The goal is to move through these movements with your breath.
Tip adapted from Very Well Fit6
What can run but never walks, has a mouth but never eats, has a head but never thinks, and has a bed but never sleeps?
Last week’s riddle: I am in the center of gravity, and part of every victory. I am clearly seen in the midst of a river. I could name three who are in love with me and have three associates in vice. What am I? Riddle answer: The letter "V."
The Fishing Village of Henningsvær, Norway
Footnotes and Sources
2. The Wall Street Journal, August 26, 2022
3. The Wall Street Journal, August 26, 2022
4. The Wall Street Journal, August 26, 2022
5. IRS.gov, April 19, 2022
6. VeryWellFit.com, May 26, 2022
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Weekly Market Insights: Powell comments spur sell-off on Wall Street
August 31, 2022