The Week in Review 5/16/22

I have not failed. I’ve just found 10,000 ways that won’t work. ~Thomas A. Edison

The S&P 500 almost entered bear market territory last week (>20% decline)… what took years now can happen in only months?

How swift will our recovery be… when we find the bottom?

Each of the major indices fell more than 2.0% this week, as the market remained pressured by growth concerns, heightened volatility, and downwards momentum.

The Nasdaq Composite lost 2.8%, the Russell 2000 lost 2.5%, the S&P 500 lost 2.4%, and Dow Jones Industrial Average lost 2.1%.

Ten of the 11 S&P 500 sectors closed lower and five of which fell more than 3.0%, namely information technology (-3.5%), consumer discretionary (-3.4%), financials (-3.6%), and real estate (-3.9%). The consumer staples sector escaped the week with a 0.3% gain.

Growth concerns were heightened by the following developments…

• Expectations for the Fed to remain on its aggressive tightening plans amid inflation data that remained elevated
• Russia threatened retaliation if Finland follows through with plans to join NATO
• Early reports that indicated that Shanghai was again tightening COVID-19 restrictions, although there was hope that those restrictions would soon ease later this month
• The IEA lowered its global growth oil demand forecast, and Saudi Arabia, according to Bloomberg, cut oil prices for Asian buyers due to weak demand
• Walt Disney warned that Disney+ subscriber growth is apt to slow down in the second half of the year
• A slew of high-growth story stocks continued to disappoint with earnings and/or guidance like Coinbase Global, Unity Software, Fiverr, Peloton, Upstart, GoodRx, Sofi Technologies, and Palantir, all embattled stocks of late.
• Uber was planning to cut costs, according to CNBC

While inflation remained hot, the peak inflation narrative was revived by a better-than-feared core PPI reading for April, a moderation in the year-over-year increases in CPI and PPI for April, a flat m/m change in import prices for April, and a downwardly revised 4.1% increase (from 4.5%) in export prices for March.

We believe we may have seen peak inflation.

Growth concerns, peak inflation hopes, and a general flight to safety contributed to increased demand for Treasuries, which drove yields lower in a curve-flattening trade this week. The 2-yr yield dropped eight basis points to 2.59%, and the 10-yr yield dropped 18 basis points to 2.94%. The U.S. Dollar Index rose 0.9% to 104.57.

Sentiment was further pressured by the S&P 500 temporarily breaking below 4,000; weakness in the mega-caps including Apple, which temporarily lost its position as the world's most valuable company by market capitalization; and the heightened volatility as investors sold into early rally efforts.

The one rally effort, however, that didn't get sold was the one at the end of the week after the S&P 500 almost entered bear market territory (it was down 19.9% from its all-time high). That key level was a presumed indicator that it was time for an overdue bounce.

Separately, Fed Chair Powell, St. Louis Fed President Bullard (FOMC voter), Cleveland Fed President Mester (FOMC voter), San Francisco Fed President Daly (non-voter) each said they prefer 50-bps rate increases instead of 75-bps. Treasury Secretary Yellen, meanwhile, said she doesn't think the huge losses in stable coins will cause systemic issues for the financial system.

On a related note, the Senate confirmed Fed Chair Powell for a second term and confirmed Lisa Cook to the Fed Board. Lorie Logan was named Dallas Fed President, effective Aug. 22.

Market Update…

• Oil Prices- Oil prices climbed about 4% and gas prices jumped to a record high. West Texas Intermediate crude rose $4.36, or 4.1%, to settle at $110.49.
• Gold - Gold fell more than 1% on Friday and set its fourth straight weekly decline. Spot gold fell 0.7% to $1,808.89 per ounce while U.S. gold futures settled down 0.9% at $1,808.20. Silver finished the week at $21.001.
• S. Dollar - The dollar index fell 0.143% to settle at $104.61. The U.S. currency is on track for its sixth straight week of gains, its longest weekly streak of the year, and has climbed more than 9% for 2022. Euro/US$ exchange rate is now 1.057.
• S. Treasury Rates- The 10-year Treasury yield dropped to 2.93% from a multiyear high of 3.13%, hit on May 6.
• Asian shares were mixed in overnight trading.
• European markets are trading flat.
• Domestic markets are trading slightly lower lower this morning.

This week we'll hear from several Fed speakers including Chairman Powell.

After last week’s inflation print, it's highly unlikely that anything has changed regarding the Fed’s policy and its expectations moving forward. Powell told NPR last Thursday that he “couldn’t guarantee a soft landing” that would bring down inflation without causing a recession.

We will also get an update on the housing market for the month of April, including new mortgage data and home sales data. Both have been in a downtrend due to rising mortgage rates, which now stand at 5.30% on average in the U.S.

The lows put in last week may (and we stress the word "may") turn out to be a short-term bottom, but that doesn’t mean investors will relax. Headwinds from inflation, lockdowns in China, and the continued geopolitical conflict in Ukraine are still very much in the mix for the rest of this year. Markets will continue to be volatile and anxiety levels high.

This too shall pass… have a wonderful week!

Michael D. Hilger, CEP^® Managing Director

Senior Vice President, Wealth Management

5956 Sherry Lane, Suite 1900 / Dallas, TX 75225Private Line: 214-365-5579 / Cell: 214-202-2540Private Toll Free: 877-208-7474 / Fax 214-691-5588

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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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