You knew the pullback was coming. With the S&P up 9.1% in July, Federal Reserve officials are pushing back on the market’s two main narratives: the Fed’s “pivot” and “we’re in a recession.” Neil Kashkari, the president of the Federal Reserve Bank of Minneapolis, suggested in an interview with the New York Times on Friday that the market had jumped ahead in anticipating that the Fed would end its rate hike program, saying that the The Fed was “united in our determination to return inflation to 2 percent … and we are a long way from doing that.” For two weeks, the bulls have been pushing the “pivot” narrative: that rate hikes are all front-loaded, that the Fed will start tapering hikes later this year, that the Fed will implement net cuts in 2023, and now is the time to go ahead and buy growth stocks. Fed Chairman Jerome Powell tried to push back on that narrative at his press conference last week, where he noted that the Fed is still expected to raise rates in 2023, not cut them. But the bulls don’t want to listen. There is also a rejection of the inflation narrative, with Atlanta Fed President Raphael Bostic telling the Wall Street Journal, “I don’t think we’re in a recession,” the same thing Powell said. Bostic pointed to strong job growth, “which suggests to me that there is a lot of momentum in the economy.” Maybe it doesn’t matter. Kashkari made another appearance this weekend, this time Sunday on CBS’ “Face the Nation,” where he said, “We’re going to do everything we can to avoid a recession, but we’re committed to reducing inflation and we’re going to do what we have to do,” he said. “We’re a long way from getting an economy back to 2% inflation. And that’s where we need to get.” Others are simply discouraging everyone from using the “R” word, suggesting that this current set of economic circumstances is, well, a little weird. “This is probably the weirdest economy any of us have ever seen or will see again in our lifetime,” Ben Carlson of Ritholtz Wealth Management said over the weekend. “Covid crashed the economy, then we had all this stimulus that gave us a sugar high and now here comes the hangover. We just don’t know if this is the kind of hangover that just requires eating fat to get through it or it’s a Vegas hangover where you feel like crap for three days afterwards.” see me Chicago Fed President Charles Evans, Cleveland Fed President Loretta Mester and St. Louis, James Bullard, make public appearances on Tuesday. July was an active month for traders. Preliminary fund flow data for ETFs indicates some significant inflows into bond funds of all types, including governments (iShares US Treasury Bond ETF (GOVT)), corporates (iShares Investment Grade ETF (LQD)) and even high yield (iShares Broad High Yield Corporate (USHY)). Dividend ETFs remain popular as a defensive way to play the market (Invesco High Dividend Low Volatility (SPHD)). Learn more about ETF flows in July on ETF Edge this Monday at 1pm when our guests will be Ben Slavin, Global Head of ETFs at BNY Mellon, and Andrew McOrmond, Managing Director of WallachBeth Capital.
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