Weekly Macro Minute


GuideStone Reflections

So Ruth left and entered the field to gather grain behind the harvesters. She happened to be in the portion of the field belonging to Boaz, who was from Elimelech’s family…. Boaz asked his servant who was in charge of the harvesters, “Whose young woman is this?”

(Ruth 2:3, 5, CSB)

We saw last week that Naomi and her family had fled to Moab to escape the famine in her native Israel. After she had lost her husband, Elimelech, and her two sons, she returned to her homeland penniless with her faithful daughter-in-law Ruth in tow.

According to law, those in need could follow behind grain harvesters to glean for themselves what had been left behind, so Ruth found a field ripe for harvest and went to work to provide for them both. When Boaz learned about her, he ensured that she received a special status among the gleaners for the rest of the harvest.

What a coincidence! Out of all the fields surrounding Bethlehem, she just happened to land in the very field owned by her mother-in-law’s kinsman, and at just the right time for Boaz to catch sight of her. And from Ruth’s immediate perspective, it was an amazing coincidence.

But in our world, there is no such thing as coincidence. Throughout the story, our anonymous narrator has been subtly pointing at God’s Providence – His invisible hand working behind the scenes to weave together seemingly unconnected events solely for the purpose of taking care of his people.

Wherever you may be in life, you can rest assured that He’s always moving to take care of you. He did it for two poor widows 3000 years ago. He’s still doing it today.

The story continues next week…

In the Economy

Over a holiday-shortened week, U.S. equities bounced back last week and put up close to a 2% gain on the back of optimism that the Fed will be able to successfully curb inflation – although what it will take to do so and how long certainly remains an open question. On the Federal Reserve front, officials continued to publicly state their plan to raise rates as much as necessary to mitigate inflationary pressures with Fed Governor Christopher Waller stating at an economists’ conference on Thursday that “we’ve got to chop this off now.” By the end of the week, federal funds futures were pricing in a 100% chance that the Fed would hike rates by 75 basis points at its next policy meeting, with a slight chance of a 100 basis points move.

On Wednesday, S&P Global and the Institute for Supply Management (“ISM”) released their final estimates of services activity in June, and both came in modestly above consensus estimates, although both showed a continued slowdown in growth. The ISM’s measure hit its lowest level since June 2020, and its employment gauge fell into contraction territory for the third time this year. Friday’s payrolls report from the Labor Department showed employers added 372,000 nonfarm jobs in June, well above the 270,000 expected. Furthermore, the 0.3% increase in average hourly earnings was in line with expectations. For the 12-month period, earnings grew by 5.1%, marking the third monthly deceleration from March’s peak of 5.6%. Yields rose on the stronger than anticipated jobs report as the bond market increased the odds that the Fed will continue raising rates aggressively in the near term. The Atlanta Fed’s GDPNow model estimate for U.S. real GDP growth for the second quarter of 2022 remained in negative territory but ticked up to an estimated -1.2%, up from -2.1% the prior week. In contrast, consensus estimates remain around +3%, with a range of +1.5% to +4.5%. If the model proves to be a reliable indicator, this is significant, because as we have highlighted previously it would lead to back-to-back quarters of negative GDP prints – something that has never occurred historically outside of a National Bureau of Economic Research (“NBER”) declared recession.

European stocks advanced alongside U.S. shares last week, after suffering three consecutive months of losses. In general, markets put up anywhere from 0.5% to 2.5% for the week. Despite trending upward, there remained a dark cloud of uncertainty as the energy crisis in Europe does not bode well for avoiding recession. An uptick in the U.S. dollar weighed broadly on all currencies, but it is worth noting that the USD/EUR currency pair approached parity. European Central Bank minutes showed most members agreed to a 25-basis point increase in July as well as a 50-basis point move in September. Germany, whose economy is typically one of the strongest amongst its peers, logged its first trade deficit since 1991 as exports fell unexpectedly and imports surged on higher food, energy and materials prices. Japan’s markets climbed strongly upward for the week as inflation remains relatively low and loose monetary policy prevails. Lastly, Chinese stocks pulled back as rising COVID cases and elevated geopolitical tensions weighed on shares.

Good news did come out of the difficult first half of 2022. First, valuations for most financial assets became much cheaper, leading to greater odds for more productive markets in 2023. Also, there appears to be the likelihood of a “red wave” in the November mid-terms and thus a balanced Congress (and the preferred state of gridlock) following. Third, the reality of a coming recession, while painful in the short term, can produce needed pruning of the excesses in the current economy. One final note to remember: bear market rallies average 15% and 34 days in duration, while the S&P 500® has not produced a negative return in the 12 months following a mid-term election since 1946.

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