July 2022 Commentary: Domino Effect

July 2022 Commentary: Domino Effect

Summary
  • Though second-quarter S&P 500 earnings were up overall, earnings are expected to decline 3.7% relative to the same quarter last year.
  • Despite these relatively lackluster results, investors have reacted positively to earnings news, indicating that expectations were very negative heading into reporting season.
  • Today, markets are at a fork in the road, and whether or not it’s prudent to “buy the dip” may depend on where the economy goes next.
  • A reactive Federal Reserve within an economy that lacks spare capacity—in labor, energy, and housing—can cause more disruptions, as well as bouts of irrational exuberance, within economic activity, earnings, and asset price.

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