Weekly Economic Update: May 23rd, 2022

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May 23rd, 2022

Author: SteelPeak Wealth –  Institute of Portfolio Management

Investors who can endure the greatest discomfort reap the greatest benefits. Discomfort is rising…

Human nature has wired our brains to make poor investment decisions. It is in our DNA. Our nervous system works around the clock to help us avoid negative outcomes for purposes of survival. When a child is burned by a hot pan for the first time, their immediate reaction is to recoil and avoid touching any pan, even a cold one, until it is clearly safe.

The same survival mechanism is at work in our brains when we are making investment decisions. When we see negative outcomes, our natural reaction is to do something to stop it. Like the child’s fear of the hot pan, investors might have the urge to liquidate investments during times of market volatility. While this might make sense in the context of survival, it is often a terrible decision in the context of investing. For investors, greater levels of discomfort today often translate into better outcomes in the future.

Countless investors who closed out investments during the 2008 Financial Crisis wish they could have taken back their decisions. In 2020, markets plunged substantially at the onset of the COVID-19 Pandemic. In both 2008 and 2020, the stock market doubled within two years following the initial dip. We are not suggesting that market conditions are the same the market conditions following the market collapse in 2008. However, we do believe that periods heightened investor fear often preconditions to periods of above average stock market returns.

The S&P 500 has closed lower in each of the last seven weeks. This has occurred just three times since 1975. The decline has left the S&P 500 more than 10% below its 200-day moving average. In the below, we have identified S&P 500 trading days below the 200-day moving average in red, and we have noted key events that took place during each such period of elevated stress. In the bottom-right of the below, we have provided a comparison of the S&P 500 subsequent returns over the months following the market downturn against subsequent returns over all periods.

The last several weeks have been tough for investors. While not the same as a child touching a hot pan, our instincts urge us to act. However, investing often requires the opposite of what feels natural. If the market is down, we believe it is best to remain optimistic. We can use data (like the above) to help rationalize our decision-making process with the hopes of improving our long-term success.

 



T I P   O F   T H E   W E E K


Check your credit report annually for errors. (They are not uncommon.) Under federal law, you are entitled to a free annual credit reports from the big 3 credit reporting agencies (Equifax, Experian and TransUnion) each year.

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THE WEEK AHEAD: KEY ECONOMIC DATA

Tuesday: Purchasing Managers’ Index (PMI) Composite Flash. New Home Sales.

Wednesday: Federal Open Market Committee (FOMC) Minutes. Durable Goods Orders.

Thursday: Gross Domestic Product (GDP). Jobless Claims.

Friday: Consumer Sentiment.

Source: Econoday, May 20, 2022

The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Monday: Zoom Video Communications (ZM).

Tuesday: Best Buy Co., Inc. (BBY), AutoZone, Inc. (AZO), Intuit, Inc. (INTU).

Wednesday: Nvidia Corporation (NVDA), Snowflake, Inc. (SNOW).

Thursday: Costco Wholesale Corporation (COST), Marvell Technology, Inc. (MRVL), Workday, Inc. (WDAY), Dollar General Corporation (DG), Dell Technologies, Inc. (DELL), VMware, Inc. (VMW).

Source: Zacks, May 20, 2022

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. 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. Companies may reschedule when they report earnings without notice.

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Q U O T E   O F   T H E   W E E K

 

“It takes a very long time to become young.”
PABLO PICASSO

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T H E   W E E K L Y   R I D D L E

Two trains are crossing America from coast to coast, traveling over 3,000 miles of track. The Gentle Zephyr is going west at 70mph; the Western Wind is headed east at 80mph. So which train will be closer to the east coast when they roll by each other in Kansas?

LAST WEEK’S RIDDLE:

Name two words in the English language that have the letter I twice in the middle of the word?

ANSWER: Skiing, taxiing.

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SteelPeak Wealth –

Institute of Portfolio Management

For more financial news and resources, visit our Insights page ⇒

 


 
Steel Peak Wealth Management, LLC (“SteelPeak Wealth”) is an SEC registered investment adviser located in California. There is no guarantee that any views, projections and/or opinions expressed herein will come to pass. This report should not be construed by any prospective investor as SteelPeak Wealth’s rendering of any personalized investment advice. Information on the registration status of SteelPeak Wealth is available at www.adviserinfo.sec.gov. A copy of SteelPeak Wealth’s current written disclosure brochure is available upon written request.
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.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. 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. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
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.
Please consult your financial professional for additional information.
Certain information contained herein has been provided by, or obtained from, third party sources. While SteelPeak Wealth believes that such sources are reliable, it cannot guarantee the accuracy of any such information and does not represent that such information is accurate or complete.


CITATIONS:

1. The Wall Street Journal, May 20, 2022
2. The Wall Street Journal, May 20, 2022
3. The Wall Street Journal, May 20, 2022
4. The Wall Street Journal, May 17, 2022

 


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