The Markets: May 2022 has proven to be nothing short of a roller coaster ride for the markets, as ongoing volatility and worries about monetary tightening to combat inflation sparked fears of a recession on the horizon.
The year-to-date sell-off of stocks accelerated this month, while the S&P 500 had its worst month since the onset of the pandemic.1 It had closed at a 14-month low by mid-May, as downbeat reports about home sales and corporate outlooks heightened investor fears. Couple that with the US Bond Index being down close to double digits, and we have a difficult investing atmosphere.
However, on Thursday, the 26th, investor confidence rose after meeting minutes from the Federal Reserve reduced some concerns about aggressive measures to tame inflation.(2)(3) Blue chips added 1.6%, while the S&P gained 1.9%. The tech-heavy Nasdaq Composite climbed 2.6%, helped by gains in shares of Microsoft, Apple, Tesla, and Amazon.(4)
Economy: On May 4th, policymakers had raised short-term interest rates by 0.50% to a target range between 0.75% and 1.00% in a bid to lower inflation—the highest rate hike in more than two decades. [Rate changes have traditionally been in quarter-percentage-point increments.] This rise in rates had significant impact across asset classes. Risk assets have sold off and bond returns have been negatively impacted by the dramatic rise in rates. Further, higher rates make it more expensive to borrow, which, in theory, should depress the consumption that is enabling companies to raise prices.(5)
The Fed’s recent rate hikes should come as no surprise, though, as it tries to combat the highest inflation rate in 40 years (8.3%),(6) even as some economic data showed some easing of price pressures last month.
In other financial news, retailers have been on an earnings spree since mid-May that has held the attention of investors anxious to see how companies are managing inflation.(7) Investors and analysts have pointed out that what has so far been a downward retail spiral reflects a shift in consumers’ demand for services rather than goods, and some have suggested stocks may be getting overly punished for their results.
In the housing market, the US government released data showing sales of new, single-family homes fell by nearly 17% month-on-month to 591,000 units in April—well below the consensus forecast of 750,000 units.(8)
International: As we look abroad, there appears to be no end in sight for the geopolitical instability that has characterized 2022. Namely, the war in Ukraine may turn into an extended conflict that could yield an international food crisis, as commodity exports from this region continue to dwindle.
In Davos at the World Economic Forum this week, German Chancellor Olaf Scholz called for a broader international effort to isolate Russia and thwart President Vladimir Putin’s efforts to undermine the global order.(9)
Concurrently, China’s stringent zero-COVID policy will likely continue to constrict economic output and credit conditions throughout this year. The lockdowns in Shanghai and regions near the country’s economic epicenter have snarled manufacturing activity, battery metals demand, cobalt market sentiment, and other commodities production.(10) China’s slowdown is a large shock that will be felt for quite some time.
What Now: So where does this leave us? In many ways, with a similar outlook to how we began Q2, as volatility and inflation will likely not abate any time soon. Indeed, these factors remain present today and are taken into consideration as we position your portfolio for the current bear market (and the eventual bull market that will follow).
We further remain focused on reviewing the effects of ongoing geopolitical instability, the Fed’s next move, and market shifts as part of our regular process for evaluating risk and opportunities. We remind clients that overly emotional reactions to a down market is a good way to derail progress made toward reaching your financial goals. So, as a central tenet of our practice, we continue to emphasize staying the course, active portfolio monitoring, thoughtful diversification, and opportunities to take advantage of low-cost buys in this bear market. Collectively, these endeavors will help maintain a resilient portfolio for what appears to be choppy markets with high volatility in the near-term.
Reduced Bond Exposure
Sold Speculative Tech fund for those with less risk/timeline profile
Perhaps, the most important thing to remember is that bear markets always happen, and, statistically, they come around about once every four years.(11) Typically, they tend to be rather short, and these are periods when you see a lot of attractive bargains that you can take advantage of.
As we inch closer to Summer, thank you for taking the time to read my market commentary. Please do not hesitate to contact me for personal insights tailored to your portfolio.
Investment advice is offered through Strauss Financial Group, Inc., a Registered Investment Advisor.
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 CNBC:https://link.edgepilot.com/s/fa2d77d0/a7qd3AJr2EOaUms4xHny7Q?u=https://www.cnbc.com/2022/05/24/stock-market-futures-open-to-close-news.html  Wall Street Journal: https://link.edgepilot.com/s/0259c05a/_2AsmIr9DUKKxFLRIGIl3A?u=https://www.wsj.com/articles/global-stocks-markets-dow-update-05-26-2022-11653550227
 Yahoo Finance: https://link.edgepilot.com/s/a0445afc/wp0lqvcNeUCxWNIVlE5YTA?u=https://finance.yahoo.com/news/fed-minutes-show-strong-commitment-to-rate-hikes-june-july-182429216.html%23:%7E:text=On%2520May%25204%252C%2520policymakers%2520raised%2Ca%2520bid%2520to%2520lower%2520inflation  CNBC: https://link.edgepilot.com/s/1e237edf/VBk-ST75OUmG4G8YuN8vGA?u=https://www.cnbc.com/2022/05/11/cpi-april-2022.html  CNBC: https://link.edgepilot.com/s/fa2d77d0/a7qd3AJr2EOaUms4xHny7Q?u=https://www.cnbc.com/2022/05/24/stock-market-futures-open-to-close-news.html  Business Insider: https://link.edgepilot.com/s/e21c9ad9/cGScrPICbkas3PPaxLUt3Q?u=https://www.businessinsider.com/housing-bubble-2022-new-home-sales-april-plunge-cooldown-2022-5?r=US%26IR=T%26utm_medium=ingest%26utm_source=markets  Bloomberg: https://link.edgepilot.com/s/8d9b9735/pQ1Wk8hRkkuc1H9E-lwu6g?u=https://www.bloomberg.com/news/articles/2022-05-26/zimbabwe-not-in-panic-mode-over-inflation-surge-davos-update  S&P Global: https://link.edgepilot.com/s/0c01cf56/bIxKsPz9kE61pWGZkC7J6g?u=https://www.spglobal.com/en/research-insights/articles/daily-update-may-20-2022  Kiplinger: https://link.edgepilot.com/s/c5f109ca/hBKPt55AQEStA7EJIqcv9A?u=https://www.kiplinger.com/slideshow/investing/t052-s001-8-facts-you-need-to-know-about-bear-markets/index.html Sources CNBC: https://link.edgepilot.com/s/fa2d77d0/a7qd3AJr2EOaUms4xHny7Q?u=https://www.cnbc.com/2022/05/24/stock-market-futures-open-to-close-news.html Google Finance: https://link.edgepilot.com/s/148bd2c3/rqMz62KwqkmQFXYbQzifJw?u=https://www.google.com/finance/quote/.INX:INDEXSP?sa=X%26ved=2ahUKEwjakoOxg_v3AhUtn44IHf-QAOAQ3ecFegQIHBAY Wall Street Journal: https://link.edgepilot.com/s/c98ff934/2zwODHp3uUiBGoR4iUE0lA?u=https://www.wsj.com/articles/global-stocks-markets-dow-update-05-24-2022-11653379171 Business Insider: https://link.edgepilot.com/s/e21c9ad9/cGScrPICbkas3PPaxLUt3Q?u=https://www.businessinsider.com/housing-bubble-2022-new-home-sales-april-plunge-cooldown-2022-5?r=US%26IR=T%26utm_medium=ingest%26utm_source=markets CNN: https://link.edgepilot.com/s/19fac24f/rlY9ZPE9GUCI3B0SsBOY8A?u=https://www.cnn.com/2022/05/25/economy/federal-reserve-minutes-powell-inflation/index.html Wall Street Journal: https://link.edgepilot.com/s/0259c05a/_2AsmIr9DUKKxFLRIGIl3A?u=https://www.wsj.com/articles/global-stocks-markets-dow-update-05-26-2022-11653550227 Bloomberg: https://link.edgepilot.com/s/8d9b9735/pQ1Wk8hRkkuc1H9E-lwu6g?u=https://www.bloomberg.com/news/articles/2022-05-26/zimbabwe-not-in-panic-mode-over-inflation-surge-davos-update CNBC: https://link.edgepilot.com/s/1e237edf/VBk-ST75OUmG4G8YuN8vGA?u=https://www.cnbc.com/2022/05/11/cpi-april-2022.html Kiplinger: https://link.edgepilot.com/s/c5f109ca/hBKPt55AQEStA7EJIqcv9A?u=https://www.kiplinger.com/slideshow/investing/t052-s001-8-facts-you-need-to-know-about-bear-markets/index.html