Monthly Market Insights | May 2022
April was a challenging month for investors as losses in mega-cap technology companies and high-valuation stocks spilled over to the broader market.
The Dow Jones Industrial Average lost 4.91 percent while the Standard & Poor’s 500 Index dropped 8.80 percent. The Nasdaq Composite fell 13.26 percent.1
Stocks struggled all month as investors grew increasingly skittish over a stream of hawkish comments by Federal Reserve officials.
Fed Chair Jerome Powell unnerved investors when he suggested that it may be appropriate to consider front-end loading rate hikes. A few weeks earlier, Fed governor Lael Brainard, considered one of the Fed’s more dovish members, implied that the Fed could take a more aggressive monetary tightening approach.
Fed Watching Inflation
Inflation continued to be an overhang on the market. March’s Consumer Price Index (CPI) was 8.5 percent year-over-year, the fastest pace since December 1981, while the Producer Price Index reflected continuing price pressures in the pipeline, picked up 11.2 percent from a year ago—a new all-time high.2
The combination of a tightening monetary policy and hot inflation drove bond yields higher, with the 10-year Treasury Note yield moving from 2.32 percent at March-end to 2.89 percent by the close of April.3
The first-quarter earnings season got off to a mostly positive start. Of the 55 percent of the S&P 500 companies reporting earnings so far, 80 percent have beaten Wall Street analysts’ earnings estimates. Companies appear to be navigating accelerating inflation, shaky consumer confidence, higher rates, and supply chain challenges.4
Markets closed out April with a volatile week, reflecting the general investor unease that weighed on markets all month.
Only one sector managed to post a gain: Consumer Staples (+2.31 percent). The remaining sectors moved lower, with losses in Energy (-1.69 percent), Real Estate (-3.56 percent), Utilities (-4.30 percent). Communications Services (-14.13 percent), Consumer Discretionary (-11.96 percent), Financials (-9.94 percent), Health Care (-4.89 percent), Industrials (-7.61 percent), Materials (-3.54 percent), and Technology (-11.02 percent).5
What Investors May Be Talking About in May
In May, investors will be adjusting to the most recent Fed decision about short-term rates and looking for clues about what to expect at the next few Federal Open Market Committee (FOMC) meetings. The two upcoming meetings will be held in fairly quick succession: June 14–15 and July 26–27.6
While the markets may have already priced in some of the Fed's plans for higher rates, it’s unclear how investors will react when governors provide guidance for the rest of the year.
Global markets trended lower as China’s lockdowns and the war in Ukraine continued to weigh on investor sentiment.
Major European markets moved lower as investors grappled with an uncertain energy picture. Italy lost 3.07 percent, Germany dropped 2.2 percent, and France fell 1.89 percent.7
Stocks in the Pacific Rim markets were under pressure. China’s Hang Seng Index lost 4.13 percent, Korea’s KOSPI Index slipped 2.27 percent, and Australia’s ASX 200 lost 0.86 percent.8
Gross Domestic Product (GDP)
The economy shrank at an annualized rate of 1.4 percent in the first quarter. The decline in GDP growth was largely attributable to a widening trade deficit and a slowing rate of inventory build-up by businesses.9
The unemployment rate dipped to 3.6 percent as employers added 431,000 jobs in March, while January and February estimates were revised higher. This marks the eleventh consecutive month that payrolls have increased by more than 400,000. Wage growth (+5.1 percent in February), while strong, remains below the rate of inflation.10
Retail sales rose 0.5 percent in March. Much of that gain was attributable to an 8.9 percent jump in sales at gas stations, a reflection of rising gasoline prices.11
Industrial production expanded by 0.9 percent, as factory capacity utilization rose to 78.8 percent, the highest since 2007.12
Housing starts rose 0.3 percent. Economists had expected a decline for the month. The increase was driven by a jump in multifamily homes, as starts of single family homes tumbled.13
Sales of existing homes fell 2.7 percent in March amid higher mortgage rates and home prices. The median price of an existing home sold last month was $375,300, which represents a 15 percent increase from March 2021 and the highest price ever recorded.14
New home sales slowed in March, falling 8.6 percent from February and 12.6 percent from March 2021.15
Consumer Price Index (CPI)
Consumer inflation hit a 40-year high, climbing 8.5 percent year-over-year. Core inflation (excludes the more volatile energy and food prices) rose 6.5 percent over last year, the steepest increase since August 1982.16
Durable Goods Orders
Durable goods orders increased 0.8 percent, in line with expectations. Excluding the defense sector, durable goods orders rose by 1.2 percent.17
On April 6th, the minutes from March’s FOMC meeting were released. These pointed to a growing consensus for one or more future rate hikes of 50 basis points and a general agreement on a framework for reducing the Fed’s balance sheet by $95 billion per month.
The balance sheet reduction is likely to begin in May and be phased in over three months.18
During the FOMC meeting, the participants concluded, "Ukraine was perceived as adding to the uncertainty around the outlook for economic activity and inflation, as the conflict carried the risk of further exacerbating supply chain disruptions and of putting additional upward pressure on inflation by boosting the prices for energy, food, and other key commodities."19
By the Numbers: Teacher Appreciation
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, or state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, timeframe, and risk tolerance.
The forecasts or forward-looking statements are based on assumptions, subject to revision without notice, and may not materialize.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. The S&P 500 Composite Index is an unmanaged group of securities considered to be representative of the stock market in general. The Nasdaq Composite is an index of the common stocks and similar securities listed on the Nasdaq stock market and considered a broad indicator of the performance of stocks of technology and growth companies. The Russell 1000 Index is an index that measures the performance of the highest-ranking 1,000 stocks in the Russell 3000 Index, which is comprised of 3,000 of the largest U.S. stocks. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark for the performance in major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
The Hang Seng Index is a benchmark index for the blue-chip stocks traded on the Hong Kong Stock Exchange. The KOSPI is an index of all stocks traded on the Korean Stock Exchange. The Nikkei 225 is a stock market index for the Tokyo Stock Exchange. The SENSEX is a stock market index of 30 companies listed on the Bombay Stock Exchange. The Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange. The Bovespa Index tracks 50 stocks traded on the Sao Paulo Stock, Mercantile, & Futures Exchange. The IPC Index measures the companies listed on the Mexican Stock Exchange. The MERVAL tracks the performance of large companies based in Argentina. The ASX 200 Index is an index of stocks listed on the Australian Securities Exchange. The DAX is a market index consisting of the 30 German companies trading on the Frankfurt Stock Exchange. The CAC 40 is a benchmark for the 40 most significant companies on the French Stock Market Exchange. The Dow Jones Russia Index measures the performance of leading Russian Global Depositary Receipts (GDRs) that trade on the London Stock Exchange. The FTSE 100 Index is an index of the 100 companies with the highest market capitalization listed on the London Stock Exchange.
Please consult your financial professional for additional information.
Copyright 2022 FMG Suite.
1. WSJ.com, April 30, 2022
2. CNBC.com, April 13, 2022
3. Treasury.gov, April 2022
4. Insight.factset.com, April 29, 2022
5. Sector.SPDR.com, April 2022
6. FederalReserve.gov, 2022
7. MSCI.com, April 30, 2022
8. MSCI.com, April 30, 2022
9. WSJ.com, April 28, 2022
10. WSJ.com, April 1, 2022
11. WSJ.com, April 14, 2022
12. Bloomberg.com, April 15, 2022
13.CNBC.com, April 19, 2022
14. CNBC.com, April 20, 2022
15. Census.gov, April 26, 2022
16. WSJ.com, April 12, 2022
17. WSJ.com, April 26, 2022
18. CNBC.com, April 6, 2022
19. FederalReserve.gov, March 15-16, 2022
20. Online.mc.edu, 2022
21. Seedscientific.com, January 20, 2021
22. Seedscientific.com, January 20, 2021
23. Seedscientific.com, January 20, 2021
24. Seedscientific.com, January 20, 2021
25. Seedscientific.com, January 20, 2021
26. Seedscientific.com, January 20, 2021
27. Seedscientific.com, January 20, 2021
28. Seedscientific.com, January 20, 2021
29. Seedscientific.com, January 20, 2021