THE WEEK ON WALL STREET
Stocks moved lower last week as recession fears deepened following a Fed hike in interest
rates and weak economic data. The Dow Jones Industrial Average fell 4.79%, while the
Standard & Poor’s 500 dropped 5.79%. The Nasdaq Composite index slid 4.78% for the week.
The MSCI EAFE index, which tracks developed overseas stock markets, slumped 4.51%.
Stocks were under pressure all week due to inflation worries, higher yields, and rising
recession concerns. In advance of the much-awaited mid-week meeting of the Federal
Open Market Committee (FOMC), bond yields jumped, and stocks retreated on speculation
that the Fed might raise rates by 75 basis points. When the Fed announced a 75 basis point
hike on Wednesday, stocks rebounded strongly. The enthusiasm was short-lived. Stocks
resumed their slide on Thursday as global central banks followed with their own rate hikes.
Recession fears grew based on a weak housing starts report and a contraction in the
Philadelphia Fed Business Index–the first contraction since May 2020.
FED RATE HIKE
The Federal Reserve announced a 0.75% hike in the federal funds rate, making it the biggest
rate increase since 1994 and signaling its commitment to address inflation. The report from
last week’s FOMC meeting also indicated new rate projections, showing that all members
expect rates to rise to at least 3.0% by year-end, with half the members expecting rates to rise
to 3.375%. The 75 basis point rate increase was a late-developing change from earlier Fed
guidance of a 50 basis point increase. The change of heart was in response to recent inflation
data and rising inflationary expectations.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Existing Home Sales.
Thursday: Jobless Claims. Purchasing Managers’ Index (PMI).
Friday: New Home Sales. Consumer Sentiment.
THE WEEK AHEAD: COMPANIES REPORTING EARNINGS
Tuesday: Lennar Corporation (LEN).
Wednesday: KB Home (KBH).
Thursday: FedEx Corporation (FDX), Darden Restaurants, Inc. (DRI).
There isn’t a great deal of economic data coming out in this holiday shortened week. The market
will likely trade on news and sentiment this week. We are seeing an oversold bounce today as the
market has become extremely oversold in the near term along with some of the most negative
sentiment we have seen in years. Ironically, unemployment is low and corporate earnings have been
good. In a few weeks we will begin to hear earnings reports and corporate expectations of earnings
going forward. Stocks have priced in hot inflation, higher rates and negative sentiment. Wall Street
is looking for downward earnings guidance as justification for lower stock prices. From what I have
seen out in the world, the consumer appears to still be busy consuming. Higher mortgage rates are
beginning to cool the meteoric ascent of home prices, so we’ll have to see where that leads us. This
isn’t 2008, so I think those expecting home values to decline by a third are going to be disappointed.
But, a flattening trend may also be welcomed from those families in pursuit of the American dream.
The work the Fed is doing to push rates up will inevitably slow economic growth. It doesn’t mean
Armageddon for all asset prices though. It just doesn’t. Though, the media would like you to believe
it does. They want you good and scared, so you’ll be glued to their reports. This combined with lower
stock prices can be particularly scary and hurts in the short-term. However, like all the downturns before
(every single one of them) this will eventually turn. There may be more work for the market to do here
though. I don’t have a crystal ball and I can’t tell you in which direction the next 10% market move will
be, but I can tell you which direction the next 100% move will be. We’re not going to zero. They (the
media and newsletter salesmen) want you to believe we are, but we aren’t. You know why? It’s not how
we as human beings are wired. We aspire for more. We want better lives for our kids than we had. We
look to the future and think of how we can improve. I don’t know too many uber pessimistic self-made
millionaires or billionaires. The saying goes “fortune favors the bold,” not “fortune favors the pessimist.”
Meanwhile, we are realists and know seeing one’s savings decline is hard. Really hard. If you’ve
experienced changes which would dictate a change in investment style or just want to talk, know we are here.
We welcome your call. In fact, if you’re a client, Liz has been reaching out to everyone to set up a review.
If she hasn’t connected with you yet and you’d like to catch up now, please call or email us. If you’re a friend,
but not a client we are here for you too. We are only a call or email away.
THIS WEEK'S UPDATE
June 21, 2022|