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).
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 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.
THIS WEEK'S UPDATE
May 09, 2022|