Broker Check


| May 09, 2022


With the Fed in focus, the markets experienced wide price swings over the course of

last week, as technology companies led the market lower. The Dow Jones Industrial

Average slipped 0.24%, while the Standard & Poor’s 500 declined 0.21%. The Nasdaq

Composite index dropped 1.54% for the week. The MSCI EAFE index, which tracks

developed overseas stock markets, fell 1.99%.


After successive daily gains to begin the week, stocks staged a powerful relief rally in

response to Wednesday’s Federal Open Market Committee (FOMC) announcement,

aided by Fed Chair Powell’s comment that a 75-basis point hike was not under active

consideration.  Stocks, however, dropped the following day as investors reassessed the

implications of a tighter monetary policy. Also on Thursday, the yield on the 10-year

Treasury Note closed above three percent. News that worker productivity fell 7.5% and

labor costs rose 11.6% in the first quarter fanned inflation fears and added to investor

unease. Despite a better-than-expected employment report, stocks closed out the week

with another day of losses amid volatile trading.  Last week was really a roller coaster

to nowhere.  See below. 


FED RAISES RATES            

The May 2022 FOMC meeting resulted in an increase of 50 basis points in the federal

funds rate, the largest rate increase since 2000. In a post-meeting press conference, Fed

Chair Powell said additional 50 basis point hikes are likely, acknowledging that inflation

was much too high and sending assurances that he was committed to price stability. The

Fed also announced that it would begin reducing its $9 trillion balance sheet by

$95 billion a month, a step the markets had been anticipating.


Wednesday: Consumer Price Index (CPI). 

Thursday: Producer Price Index (PPI). Jobless Claims. 

Friday: Consumer Sentiment.


Monday: Tyson Foods, Inc. (TSN).

Tuesday: Occidental Corporation (OXY), Sysco Corporation (SYY).

Wednesday: The Walt Disney Company (DIS), Rivian Automotive, Inc. (RIVN).

Thursday: Affirm Holdings, Inc. (AFRM).

We are going through a difficult market.  Ten of the eleven industry groups of the S&P

500 are well into the red for the year.  Other than energy, almost all stocks are down.  

It is important to realize even great companies, whom we know will continue to thrive

many years from now, are currently taking it on the chin. It certainly seems dark outside,

but we know it doesn’t remain dark forever.

There have been nearly 30 corrections of more than 5% since the March 2009 low.

Nine were larger than 10%, three exceeded 20%, and one exceeded 30%. 2020 was the

fastest bear market in history. Downturns are inevitable, yet financial panics occur

regularly. Maintaining composure, patience, and fortitude is a requirement to sound

investing. To fully reap the benefits of compounding, you need a portfolio you can

stick with through the declines. Uncertainty always looms, and we must stomach

drawdowns for the best returns. 

Declines are a matter of when, not if. Many experts say our panic lies in a fear of the

unknown and believing that a dramatic event warrants a dramatic response.  Acting

during a panic helps us feel in control of the situation. Herd mentality also plays a role:

Other people panicking can prompt us to participate in the panic, exacerbating the pain. 

Let us revisit a cornerstone of our research approach: The future is unknown. Worry

and panic are understandable, but neither is helpful. Successfully navigating the next

few months requires charting a middle course, with clear goals and a clear plan. We

can do this with the proven, effective tools we already have, while giving in to neither

dismay nor dismissal. Remember, the stock market is an incredible mechanism to

accumulate wealth over time, but it doesn’t come without risk. Volatility is the price

we pay.

We live in an overly saturated news environment.  We’re bombarded with opinions

and messaging, which amplify the booms and busts, making them more consequential

to the real economy. If we don’t filter our media channels properly, the fodder can

disrupt our emotions. We can expect more market craziness until the Fed’s struggle

to beat inflation has been resolved.  The bond market is doing some of the heavy lifting

for the Fed right now, and there may be some cracks appearing in the runaway inflation

story.  However, it’s probably not over just yet.  As uncomfortable as it may be, history

tells us that you will do well if you hang in there.  Over the long run, this approach has

led to good fortune.