Weekly Economic Update: May 2nd 2022

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Newsletter - 2 - 05 - 22

 

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May 2nd, 2022

Author: SteelPeak Wealth –  Institute of Portfolio Management

 

The Fed Reserve meets this week to take the next step to rein in inflation. Futures markets are pricing in a 50bps rate increase this week and additional 50bps increases at the June and July meetings. If the Fed hikes rates at the pace the market expects, this will be the fastest hiking cycle since the late 1970s when Paul Volcker served as Fed Chair. Equity markets were mostly flat through Thursday of last week. However, on Friday the release of the Employment Cost Index showed an increase in wage pressures which contributed to further fears of inflation. Interest rates rose sharply, and the stock market sold off in response to the report. 

During the Fed’s forthcoming press conference this week, Chair Jay Powell will have an opportunity to ease investor anxiety about persistent inflation and significantly higher interest rates. Futures markets are pricing in more rate increases than the Fed has previously communicated, which leaves some room for Powell to deliver a message that could be seen as favorable by markets. 

The S&P 500 is down 14% from its all-time high on January 3rd. Corrections like the one we are experiencing can but painful, but they are not rare. In fact, since 1980, the average intra-year decline for the S&P 500 has been 14%. The chart below shows the intra-year drawdown and the full year return for each year. Corrections are a normal function of healthy markets. 

 

While the chart above is meant to show the variation in returns and drawdowns from one year to the next, what is doesn’t illustrate is the power of compounding over a long period of time. The chart below shows the cumulative growth of the S&P 500 over the same period, since 1980. Historically, the market has rewarded those investors who can stay the course through good times and corrections.

While the above charts focused on the S&P 500, the below market dashboard shows returns across US and international stocks, as well as bonds and select commodities. Diversifying across international equities and bonds hasn’t helped much during the current correction. Except for energy and some high dividend US stocks, most markets are down since the start of the year. This is not unusual during corrections and shouldn’t been seen as a sign that diversification does not work.

The current correction has now reached the average depth of corrections experienced over the last 40 years. This is not the time to make wholesale changes to investment plans. When the market does bottom, it is common for those parts of the market that are down the most to bounce back the fastest.



T I P   O F   T H E   W E E K


If you’re a new parent, you have 18 years to save for your child’s college education. Start now because who knows what college may cost by then.

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THE WEEK AHEAD: KEY ECONOMIC DATA

Monday: Institute for Supply Management (ISM) Manufacturing Index.

Tuesday: Factory Orders. Job Openings and Turnover Survey (JOLTS).

Wednesday: Federal Open Market Committee (FOMC) Announcement. Automated Data Processing (ADP) Employment Report. Institute for Supply Management (ISM) Services Index.

Thursday: Jobless Claims.

Friday: Employment Situation.

Source: Econoday, April 29, 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

Tuesday: Advanced Micro Devices, Inc. (AMD), Pfizer, Inc. (PFE), Starbucks Corporation (SBUX), Marathon Petroleum Corporation (MPC), Skyworks Solutions, Inc. (SWKS), Prudential Financial, Inc. (PRU).

Wednesday: CVS Health Corporation (CVS), Twilio, Inc. (TWLO), Fortinet, Inc. (FTNT), eBay, Inc. (EBAY), Booking Holdings, Inc. (BKNG), Match Group, Inc. (MTCH).

Thursday: Block, Inc. (SQ), Illumina, Inc. (ILMN), Shopify, Inc. (SHOP), Pioneer Natural Resources Company (PXD), ConocoPhillips (COP), AnheuserBusch InBev (BUD), Albemarle Corporation (ALB), Vertex Pharmaceuticals, Inc. (VRTX), Kellogg Company (K), Air Products and Chemicals (APD).

Source: Zacks, April 29, 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

 

“For life: It is rather a determination not to be overwhelmed. For work: The truth can only be recalled, never invented.”

MARILYN MONROE

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T H E   W E E K L Y   R I D D L E

What is the number missing within this sequence? 4, 7, 11, 18, 29, 47, __, 123, 199, 322.

LAST WEEK’S RIDDLE: Wilson, Xavier, Yolanda, and Zach are standing in line at the market. See if you can figure out their order from these clues: Yolanda is between Wilson and Xavier, Zach is next to Wilson, and Xavier is not first.

ANSWER: Zach is first, Wilson is second, Yolanda is third, and Xavier is fourth.

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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, April 29, 2022
2. The Wall Street Journal, April 29, 2022
3. The Wall Street Journal, April 29, 2022
4. CNBC, April 28, 2022

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