Farmers & Merchants Bank

Also, this week consumers continued to demonstrate their resilience as retail sales for July were much more substantial than anticipated. For economists forecasting a recession, consumer strength has been confounding. This is due to evaporating excess savings from pandemic-related relief programs and the upcoming end of the moratorium on
student loan repayments.

Another reflection of consumer confidence was the latest report on housing starts which rebounded from a decline in June to an increase of 3.9% for July. Building permits held steady in July, virtually unchanged from the level seen in June.

Two other indicators released this week showed better-than-expected results. Industrial production +1.0% and manufacturing production +0.5% were both higher than expected.

Fixed income was impacted by numerous factors this week, leading to a negative return of 0.6% for the period. Driving the negative return was an increase in interest rates as evidenced by the yield on the 10-year U.S. Treasury issue that ended the week at 4.25%. This is the highest yield for the 10-year since 2008.

Included in the factors impacting bonds were the waning expectations of an imminent recession, a heavy issuance calendar of Treasury security sales, and the Federal Reserve governor’s comments indicating that they may execute additional Fed Funds Rate increases.

Equity investors also experienced a negative return for the week. For U.S. investors, equities, as measured by the Russell 3000 Index, had a return of -2.2% for the week. And both market growth and value segments had negative returns exceeding 2.0%. Small cap stocks fared even worse for the week as the Russell 2000 Index declined
by 3.8%. International equities as measured by the MSCI EAFE Index also declined, returning -1.4%. The decline in equities is not unexpected given the extraordinarily robust performance they have delivered year-to-date.