THE WEEK ON WALL STREET 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%. A WILD WEEK 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. THE WEEK AHEAD: KEY ECONOMIC DATA Wednesday: Consumer Price Index (CPI). Thursday: Producer Price Index (PPI). Jobless Claims. Friday: Consumer Sentiment. THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS 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). FINAL THOUGHTS 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.
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THIS WEEK'S UPDATE
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May 09, 2022
