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THIS WEEK'S UPDATE

| May 24, 2022
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THE WEEK ON WALL STREET

Recession fears grew last week following weak earnings reports from major retailers,

sending stocks lower. The Dow Jones Industrial Average fell 2.90%, while the Standard

& Poor’s 500 lost 3.05%. The Nasdaq Composite index dropped 3.82% for the week.

The MSCI EAFE index, which tracks developed overseas stock markets, gained 0.84%.
 

TRENDING LOWER

Stock prices remained in a downtrend, capped by a sell-off on Wednesday following a

succession of disappointing earnings reports from several major retailers. Despite solid

April retail sales and industrial production data, weak economic numbers from China

and shrinking profit margins at U.S. retailers fanned recession fears throughout the week. 

Rising yields, which have been an overhang to the markets in recent weeks, turned lower

as investors appeared to move cash to bonds from stocks. But lower yields did not help

stock prices, which closed out the week with a volatile trading session.
 

CLOUDY PICTURE WITH RETAILERS              

Investors received a mixed message from the retail sector. April’s retail sales increased 0.9%

from March, signifying that consumer spending remained strong. But it was difficult to

determine from the retail sales report whether the increase was a function of higher retail

prices or a resilient consumer.  It was also a big week for earnings reports from some of the

nation’s largest retailers. Results were disappointing as retailers struggled with supply chain

issues, higher costs, and misaligned product mix. Some retailers indicated a drop in the

number of transactions, suggesting that shoppers reduce purchases due to higher prices on

essential items.
 

THE WEEK AHEAD: KEY ECONOMIC DATA

Tuesday: Purchasing Managers’ Index (PMI) Composite Flash. New Home Sales.

Wednesday: Federal Open Market Committee (FOMC) Minutes. Durable Goods Orders.

Thursday: Gross Domestic Product (GDP). Jobless Claims. 

Friday: Consumer Sentiment.
 

THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS

Monday: Zoom Video Communications (ZM).

Tuesday: Best Buy Co., Inc. (BBY), AutoZone, Inc. (AZO), Intuit, Inc. (INTU).

Wednesday: Nvidia Corporation (NVDA), Snowflake, Inc. (SNOW).

Thursday: Costco Wholesale Corporation (COST), Marvell Technology, Inc. (MRVL),

Workday, Inc. (WDAY), Dollar General Corporation (DG), Dell Technologies, Inc. (DELL),

VMware, Inc. (VMW).
 

FINAL THOUGHTS

Higher rates, Inflation and Bears, Oh My!  Well, I couldn’t resist that.  To date, this year has

been one difficult market.  Asset allocation and diversification really haven’t helped a great

deal.  Stocks are down.  Ten of eleven sectors are negative.  Only energy is positive and you

wouldn’t have your whole portfolio in energy.  If you did, the past 10 years have been unkind

to you, until now.  Bonds are down.  Interest rates have run up a great deal in a short period of

time.  I’m not talking about Fed Funds rates.  I’m talking about treasury rates and everything

that is priced based upon them, like mortgage rates.  In fact, some think they’ve gone too far

too fast and we may see a bit of a rollover there.  Let’s hope. 
 

The Fed will continue raising rates, but we are reading reports inflation may be peaking.  It’s

early, but the nation’s largest retailers are seeing less demand, and we are reading additional

reports that wage inflation may be beginning to cool.  We’ll need to see more than a month’s

worth of data, but it could be the beginning of a new trend.  If so, the market is doing some very

heavy lifting for the Fed and rates may not go quite as high as anticipated early in the year.
 
Now, what about the market?  Well, my crystal ball rolled off the desk and broke in half this

morning.  But, after attempting to put it back together and peering through the duct tape and

glue, the market is looking a little oversold in the short-term.  That doesn’t mean we won’t see

more downside, but we could be closer to the end than the beginning.  In terms of baseball

vernacular, we may be near the 7th inning stretch.  We could see a little more washout into June,

but if inflation is beginning to crack and the labor market is easing up a bit, the worst possible

outcome will probably be avoided.  Stay tuned.

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