Dueling Mandates

Weekly Market Update | August 8, 2022


The global equity market logged its third straight week of gains with the MSCI World Index rising 0.3% - the index is now up 6.8% over the last three weeks. In the United States, the tech-heavy NASDAQ added 2.2% while the S&P 500 edged just 0.4% higher. Non-U.S. markets were mixed with European and Japanese stocks both down 0.9% while emerging market stocks jumped 1.0%. The 10-year U.S. Treasury yield rose 18 basis-points to 2.83%.

The U.S. economy added 528,000 jobs in July. There were two takeaways from the report: 1) the U.S. economy is likely not in a recession and 2) the Fed is probably not done raising rates. Later this week, the July consumer price index (or CPI) will be released. It is expected to show headline inflation slowing while core inflation rises a bit.

A strong employment print and slowing headline inflation should be seen as a minor victory for the Fed as it raises the odds of a “soft landing.” But some investors still worry that the strong jobs report could give the Fed a greenlight for even more rate hikes. As time progresses, the Fed’s dual mandates of “price stability” and “maximum employment” may conflict with each other.

Although the strong labor market likely confirms that the U.S. economy is not in a recession, it does not confirm one will ultimately be avoided. As such, we think it is a bit too early to abandon caution, and so we remain defensively positioned.