The Week in Review 5/9/22

“Buy when everyone else is selling and hold until everyone else is buying. That’s not just a catchy slogan. It’s the very essence of successful investing.”
–J. Paul Getty

Good Morning,

May has begun with a volatile week that produced losses for the major averages. The Nasdaq led the way, falling 1.5% while the S&P 500 surrendered 0.2%. Small caps also struggled, sending the Russell 2000 lower by 1.3%.

The week actually began with modest gains for the major averages, but not before early selling sent the S&P 500 to its lowest level in nearly a year.

However, the market overcame the weak start and climbed for the next two days, capping the rally with an impressive Wednesday surge that took place even though the FOMC announced a 50-bps rate hike and a balance sheet reduction plan. However, Fed Chairman Powell acknowledged that a 75-bps hike is not being considered, which was cited as the reason for the post-FOMC rally that lifted the S&P 500 to a one-week high.

Whatever positives were gleaned from Wednesday's rally were forgotten by the end of Thursday's session, which saw the major averages cough up their gains from the previous day while crude oil remained resilient, staying above its 50-day moving average (104.96) even though the U.S. Dollar Index pushed to a fresh 20-year high.

Friday's session was also uninspiring as equities followed a weak start with a brief recovery that faltered as the day went on. Few investors were interested in buying the close before a weekend.

Besides the weak action, the day's biggest story was the release of the April jobs report, which beat headline estimates but also showed a decrease in the labor force participation rate.

Quarterly earnings continued pouring in during the past week, but even positive results were often met with selling amid concerns about headwinds from soaring inflation.

Corporate news is quite positive…

Key Metrics

• Earnings Scorecard: For Q1 2022 (with 87% of S&P 500 companies reporting actual results), 79% of S&P 500 companies have reported a positive EPS surprise and 74% of S&P 500 companies have reported a positive revenue surprise.
• Earnings Growth: For Q1 2022, the blended earnings growth rate for the S&P 500 is 9.1%. If 9.1% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q4 2020 (3.8%).
• Earnings Revisions: On March 31, the estimated earnings growth rate for Q1 2022 was 4.6%. Ten sectors have higher earnings growth rates today (compared to March 31) due to positive EPS surprises and upward revisions to EPS estimates.
• Earnings Guidance: For Q2 2022, 50 S&P 500 companies have issued negative EPS guidance and 22 S&P 500 companies have issued positive EPS guidance.
• Valuation: The forward 12-month P/E ratio for the S&P 500 is 17.6. This P/E ratio is below the 5-year average (18.6) but above the 10-year average (16.9). (Source: FactSet)

Market Update…

• Oil Prices - Oil prices climbed for a third straight session last week.. West Texas Intermediate crude advanced 1.83% to $110.24/barrel while Brent crude rose 1.75%, or $1.94 to $112.83/barrel.
• Gold - Gold prices were higher last week, but looked for a third straight weekly loss. Spot gold rose 0.2% to $1,880.86 per ounce while U.S. gold futures climbed 0.8% to $1,882.7 per ounce. Silver finished the week at $22.367.
• S. Dollar - The dollar index changed little after hitting 20-year high but lost ground to settle at $103.66. Thus far this year, the dollar index has gained 5.7%. Euro/S$ exchange rate is now 1.071.
• S. Treasury Rates - The 10-year Treasury yield pushed through 3% for the first time since late 2018. On Friday, the yield was at 3.13%, up from 2.94% the Friday before.
• Asian shares were mostly lower in overnight trading.
• European markets are trading down.
• Domestic markets are in the red again this morning.

This week will feature the CPI and PPI reports for the month of April. These will be the first reports fully encompassing the first rate hike done by the Fed.

Although unlikely, we could start to see what effect, if any, the Fed is starting to have on the economy. Also on deck, is the OPEC monthly report. With the European Union’s renewed commitment to eliminating its purchases of Russian energy exports, OPEC is a possible energy partner who could increase production to meet this new demand.

This too shall pass… have a great week!

The opinions expressed herein are those of Michael Hilger and not necessarily those of Raymond James & Associates, Inc., and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forcasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

The information contained herein is general in nature and does not constitute legal or tax advice. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. The Dow Jones Industrial Average (INDU) is the most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials. The Dow Jones Transportation Average (DJTA, also called the "Dow Jones Transports") is a U.S. stock market index from the Dow Jones Indices of the transportation sector, and is the most widely recognized gauge of the American transportation sector. Standard & Poor's 500 (SPX) is a basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value, and its performance is thought to be representative of the stock market as a whole. The NASDAQ Composite Index (COMP.Q) is an index that indicates price movements of securities in the over-the-counter market. It includes all domestic common stocks in the NASDAQ System (approximately 5,000 stocks) and is weighted according to the market value of each listed issue. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks.

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