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Market Volatility Persists
U.S. markets fell for the fifth week in a row as sentiment shifted mid-week. We saw global markets (represented by the MSCI All Country World Index) down -1.5% and domestic stocks (represented by the S&P 500 Index) down -0.2%.
The Fed and Interest Rates
The Fed concluded its normal two-day meeting last week by doing what the market expected, which was raising short-term interest rates by 0.50%. While the market reacted very positively to the news on Wednesday, sentiment shifted and caused a very volatile end to the week.
One of the concerns of markets has been that the Fed would really try to front-load interest rate increases to tighten monetary policy quicker. While the increase of 0.50% was higher than the previous 0.25% bump, Fed Chair Powell said that increases of 0.75% are currently not on the table.
First Quarter Earnings
According to FactSet, 87% of companies in the S&P 500 have reported Q1 2022 earnings. Despite the volatility, earnings are projected to have grown at 9.1% for the quarter, which is higher than was projected back at the end of the quarter. Part of the blame for the volatility is what’s being said by company management on calls, which largely relates to input costs and supply chain constraints.
10-Year Bond Yield
With all the focus on inflation and the Fed, the 10-year government bond yield is now in the 3.1% area. For perspective, that same yield was around 1.5% coming into 2022 and as low as 1.18% as recently as August 2021.
The Labor Market
The labor market continued to show strength with April unemployment remaining steady at 3.6%.
CPI and Index Reports
All eyes will be on a few economic/market reports this week. The primary is the CPI (inflation) report that the U.S. Bureau of Labor Statistics will release on Wednesday. Additionally, we’ll get a fresh producer price index report on Thursday and a consumer sentiment report on Friday.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
S&P 500: The Standard & Poor’s 500 Composite Stock Price Index is a capitalization-weighted index of 500 stocks intended to be a representative sample of leading companies in leading industries within the U.S. economy. Stocks in the Index are chosen for market size, liquidity, and industry group representation.
Russell 2000: The Russell 2000® Index is a capitalization-weighted index designed to measure the performance of the 2,000 smallest publicly traded U.S. companies based on in market capitalization. The Index is a subset of the larger Russell 3000® Index.
MSCI All Country World Index: The MSCI ACWI captures large and mid-cap representation across 23 Developed Markets (DM) and 24 Emerging Markets
(EM) countries. With 2,937 constituents, the index covers approximately 85% of the global investable equity opportunity set.
GDP: Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
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