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)

While Paul was in Europe, he spent some time in Athens discussing the gospel in the marketplace with whomever happened to be present. In those days, the marketplace served as a central location for those interested in philosophy to gather and discuss their ideas.

Some there became interested in Paul’s teaching because he seemed “to be a preacher of foreign deities.” Paul began his explanation of the gospel by noting that the people of Athens were so religious that they even paid homage to an unknown god. Paul was emphasizing their ignorance of God and their need to know Him. Many came to Christ that day.

Paul’s sermon is interesting because it demonstrates how he shared the gospel with people: he moved to their level. When he preached to Jews, he began with their scriptures, our Old Testament. When he preached to the pagan Athenians, he began with their philosophy. When it came to proclaiming the gospel, Paul demonstrated an “accommodative consistency.” He always lived and taught in a manner consistent with the gospel, but he was accommodative in engaging other cultures and people with its truth.

As we engage with our post-Christian culture, we need to follow Paul’s accommodative consistency. Live a faithful Christian life and become students of the people God places in your life. Understand what they believe. Find places where the gospel can penetrate. Then share it boldly.

In the Economy

On Friday, Federal Reserve Chairman Powell’s speech in Jackson Hole stuck to a hawkish script and earned back some of the Fed’s inflation fighting credibility. Though remarkably short compared to prior ones, it was quite straightforward with no surprising or contentious elements. Still, it underlined the message sent by all FOMC members last week that inflation is too high, the Fed is determined to bring it down and that it will move policy into restrictive territory to do so. Importantly, Powell explicitly referenced the lessons learned in the 1970s meaning that the Fed intends to maintain tight monetary policy for “some time” and that this will cause “some pain to households and businesses”. We believe that the U.S. is in for a sustained period of economic weakness. The primary question is how patient the Fed will be, or whether it will pivot to a more accommodative stance as economic conditions worsen during its quest to bring inflation back down to 2%.

The markets finally seemed to take note of the hawkish chorus after Powell’s speech and the U.S. equity markets tumbled the most since June. We continue to believe equity markets have not priced in a recession yet and more weakness is likely as both earnings per share and price/earnings ratios decline.

Economic news from the week was mixed but further evidence of a slowdown did emerge. On the negative side, the S&P Global U.S. Composite Purchasing Managers Index (“PMI”) dropped further into contraction territory, sales of new homes in July fell for a sixth month and personal income and spending fared far worse than consensus expectations. Positive news included jobless claims falling to the lowest level in a month (although continued tightness in the labor market keeps the Fed’s focus on inflation) and the University of Michigan’s index of consumer sentiment bouncing for a second month. As evidenced by data releases again this past week, we likely remain in a “good news is bad news” world for asset prices as current strength – particularly in the labor market, increases the odds of the Fed overtightening and sending the U.S. into a recession.

Across the Markets

• The S&P 500^® Index moved sharply lower (15.3% off the all-time high and about 10.7% off the lows this year) extending losses for a second straight week as optimism waned that the Fed will be able to engineer a soft landing.
• Growth-oriented sectors (communication, tech, and discretionary) led market declines, while energy, materials and utilities outperformed.
• U.S. 2-Year Treasury yields broke to new highs this cycle, ending near 2.40%, and the yield curve inverted further with the 2-10 spread at 37 basis points.
• Oil prices rose on rhetoric from Saudi Arabia suggesting $100 as a desirable spot for Brent crude (WTI finished above $93, and Brent over $100).
• The Atlanta Fed’s GDPNow model’s estimate for U.S. real GDP growth for the third quarter of 2022 stayed at 1.6% as did the range of forecasts from approximately 2.75% to -0.25%.