Markets Bounce as Fed Minutes Released
Global equity markets bounced back after several consecutive weeks of downward pressure. We saw global markets (represented by the MSCI All Country World Index) up 5.0% and domestic stocks (represented by the S&P 500 Index) up 6.6%. The Nasdaq composite index, which is comprised mostly of technology companies, rebounded 6.9% for the week.
There are a few measures of inflation in the economy, but the Federal Reserve prefers to look at the Personal Consumption Expenditures Price Index as its primary benchmark. All eyes were on the release on Friday of the April numbers, and the index ended up coming in at a 6.3% annual rate after posting 6.6% in March. Signs are pointing to the fact that inflation may have peaked in March, however, the Fed will continue to raise rates to get that annual figure back down to its targeted 2-3% range.
Federal Reserve News
In other Federal Reserve news, the minutes from their May meeting were released last week. In those notes, it became clear that the Fed expects to raise rates by 0.50% in each of the next two meetings and hope to reduce to 0.25% increases after that. This is what is currently priced into markets currently.
Despite all the headwinds and noise in financial markets, consumer spending continues to be very strong. In Q1 2022, S&P 500 company earnings were up about 9.2% (above Q1 2021) according to FactSet. While spending and revenues continue to be strong, it’s the input and labor costs that are the concern over profitability moving forward.
The May jobs report will be released on Friday this week. With unemployment sitting at 3.6% for April, we’ll see whether the labor market can continue its strength.
I thought the below was interesting given all the talk about bear markets. The below breaks down the median returns over different time periods for the S&P 500 (U.S. large companies) following the start of a bear market versus unconditional periods. It isn’t a huge surprise that after markets reprice themselves and sentiment hits low levels that subsequent returns are often above average. For perspective, there have been 12 bear markets since World War II.
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.
The views expressed in this commentary are subject to change and are not intended to be a recommendation or investment advice. Such views do not take into account the individual financial circumstances or objectives of any investor that receives them.
All indices are unmanaged and are not available for direct investment. Indices do not incur costs including the payment of transaction costs, fees and other expenses. This information should not be considered a solicitation or an offer to provide any service in any jurisdiction where it would be unlawful to do so under the laws of that jurisdiction. Past performance is no guarantee of future results.
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