May 27, 2022 Weekly Equity Market Recap. All three major equity indexes jumped over 6% this week, which hasn’t happened since November 2020: The S&P 500 gained 6.6%, the Dow was up 6.2%, while the Nasdaq was the outperformer, up 6.8%. Over $21 billion flowed into global equity funds on the week thru Wednesday, the largest inflow in 10 weeks, according to BofA Global Research. US stocks surged on the notion that early signs of a possible recession are in play, so the Fed won’t be able to hike rates after June and July. The U.S. economy unexpectedly dropped by 1.4 percent annualized rate in the first three months (Q1) of 2022 after more than a year of rapid GDP growth, according to a Bureau of Economic Analysis. Last year, for example, the U.S. economy grew by 5.7 percent, the fastest full-year clip since 1984. However, US inflation-adjusted consumer spending increased in April by the most in three months, indicating households were holding up in the face of persistent price pressures by dipping into savings. The Fed announced on Tuesday they may raise interest rates to high enough levels to purposely fuel a deceleration in economic growth to combat surging inflation – while also approving a plan to shrink the Fed's $9 trillion portfolio starting June 1. The information comes shortly after Fed Chairman Jerome Powell said 0.5% increases would likely be needed at the next several meetings. Powell emphasized that to bring down prices, the unemployment rate may need to rise. Though client portfolios remain allocated toward defensive positioning, portfolios were nonetheless buoyed by the weekly rally.
May 20, 2022 Weekly Equity Market Recap. S&P 500 is down for seventh week in a row as a bear market looms. On the week, the S&P 500 dropped 3.1%, Dow Jones declined 2.8% and the Nasdaq Composite fell 3.8%. On Friday, the broad equity market S&P 500 benchmark briefly touched bear market territory after falling over 20% from its January high of 4,797, before erasing losses to close at 3,901. Our client portfolios continue to weather much of the volatility as we have thoughtful risk controls in place and have been active with portfolio adjustments to align with this stagflation investment climate, particularly over the past four months. For example, client portfolios have been largely insulated from the massive market losses due to thoughtful asset diversity, purposeful high cash, loss buffer equity ETFs, several intentional inflation hedges and helpful alternative funds having low correlation to US equities. Historically, should the economy be entering a recession then stocks typically enter bear markets, and things will get worse, down -34.8% on average and lasting nearly 15 months. However, in the event the economy avoids a recession, the bear market bottoms at -23.8% and lasts just over seven months on average. The May University of Michigan consumer sentiment survey data showed that sentiment had dipped to low levels not seen since 2011.
May 14, 2022 Weekly Equity Market Recap. On Friday, the S&P 500 gained 2.4% and the Nasdaq climbed 3.8% while the Dow Jones closed up 1.5%. Despite Friday’s bounce, all three major U.S. indexes fell for the week: The Dow Jones, the S&P 500, and the Nasdaq slipped 2.1%, 2.4%, and 2.8%, respectively. The S&P 500 is on pace for one of its worst plummets since the March 2020 bear market and much of the carnage has occurred in just the last two weeks. The S&P 500 has fallen to a 52-week low, with more than half of the stocks in the S&P 500 now trading below their 200-day average. While the first-quarter earnings season for the S&P 500 has reflected respectable profits for companies, concerns over inflation, higher future interest rates, and the potential for a deteriorating economy have rattled investors. This worrying investment climate is not only giving investors pause, but also forcing investors to reevaluate what they are willing to pay for stocks in the throws of several strong headwinds. Our investors continue to benefit from early portfolio actions taken in the form of reduction stock and bond allocations, while increasing exposure to energy, commodities, gold, and alternative funds.
May 7, 2022 Weekly Equity Market Recap. The U.S. stock market posted its fifth consecutive weekly loss on data showing a tighter labor market which only added to investor fears of aggressive Fed rate increases this year. The S&P 500 and Dow shed 0.2% each for the week while the Nasdaq fell 1.5%. So far for the year, the S&P 500 has tumbled 12% while the Nasdaq has plummeted into bear market territory, down 22%. In this bleak investment environment, we continue to recommend portfolio allocations toward watersheds like energy, commodities, precious metals, cash and alternative funds. In fact, most of our alternative funds are up for the year, and we have added to all these other asset classes. The reality is the naïve balanced traditional portfolio is getting crushed as bonds are also down in the -10% range: the Ishares Cored Moderate Allocation ETF is -11% year-to-date. Finally, cash is an asset class in this environment and should be an area to add in this flight to safety. Fortunately, due to our re-posturing portfolios in early January, then again on several other occasions, our clients have only had a partial exposure to the capital market losses for the year.