THE WEEK ON WALL STREET In a volatile trading week, stocks extended their losses as economic growth and inflation concerns soured investor sentiment. The Dow Jones Industrial Average dropped 2.14%, while the Standard & Poor’s 500 lost 2.41%. The Nasdaq Composite index fell 2.80% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slumped 3.21%. Inflation moved to center stage last week with the release of April’s Consumer Price Index (CPI) and the Producer Price Index. Both numbers came near their 40-year highs but were lower than March’s year-over-year numbers. The results heightened investor anxiety about future Fed monetary tightening and its impact on economic growth. In recent weeks, technology stocks have borne the brunt of the downdraft as investors lightened up on risk exposures, with some of the mega-cap tech names getting swept up in the selling pressure. Cooling import price increases buoyed spirits on Friday, helping spark a rally that reduced the week’s losses. INFLATION REMAINS Investors were greeted with a mixed CPI report, looking for signs that inflation may be cooling. Year- over-year costs rose 8.3%, slower than the previous month but faster than consensus estimates. Excluding food and energy, core inflation climbed 6.2%. Buried beneath the headline number was a 5.1% yearly increase in shelter costs, the most significant increase since 1991. Shelter costs account for one-third of the CPI. Inflation has been a weight on markets all year. Investors are concerned that the persistence of higher prices may tip the economy into recession as increased spending on essential needs crimps consumers’ spending power. There have been glimmers of hope as we are seeing declines in used car prices, which can be a leading indicator of inflation beginning to slow. THE WEEK AHEAD: KEY ECONOMIC DATA Tuesday: Retail Sales. Industrial Production. Wednesday: Housing Starts. Thursday: Existing Home Sales. Jobless Claims. Index of Leading Economic Indicators. THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS Tuesday: Walmart, Inc. (WMT), The Home Depot, Inc. (HD). Wednesday: Cisco Systems, Inc. (CSCO), Target Corporation (TGT), Lowe’s Companies, Inc. (LOW), The TJX Companies, Inc. (TJX), Analog Devices, Inc. (ADI). Thursday: Applied Materials, Inc. (AMAT), Palo Alto Networks, Inc. (PANW), Ross Stores, Inc. (ROST). Friday: Deere & Company (DE). FINAL THOUGHTS This is a tough market. While the overall economy has been doing well this year and unemployment is near all-time lows, the market has taken it on the chin. Many expect the economy to slow, and the market is forward looking, so it is pricing in how it believes the overall economy will look several months from now. The fact is it is hard to know the future. Sentiment has become really, really negative and it can become a self-fulfilling prophecy. American business isn’t on the ropes. All of this negativity and despair has come because of the initial prospect and somewhat likeliness of an economic recession. Meaning, the economy slows down. Well, we know the economy cannot grow at an ever-accelerating pace forever and slowdowns are normal. We’ve successfully navigated them in the past and have always gone on to greener pastures and brighter futures. We will do the same this time. This week we'll hear from several Fed speakers including Chairman Powell. After last week’s inflation print, it's highly unlikely that anything has changed regarding the Fed’s policy and its expectations moving forward. Powell told NPR last Thursday that he “couldn’t guarantee a soft landing” that would bring down inflation without causing a recession. We will also get an update on the housing market for the month of April, including new mortgage data and home sales data. We still face some headwinds, but as I stated earlier we’ve seen this movie before and we know how it ends. Armageddon is not at hand. Markets and economies are cyclical. We’ll see greener pastures again. Have good week!
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THIS WEEK'S UPDATE
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May 16, 2022
