Major topics affecting stocks last week:
Finally! After seven consecutive losing weeks for the S&P 500, the index managed to close higher last week. And it was quite the move with the S&P 500 Index up more than 6% for its best one-week gain since the first week of November 2020 (Election Week). The strength last week was attributed to month-end portfolio adjustments as mutual fund and hedge fund managers added stocks to rebalance portfolios. The Dow Jones Industrial Average added almost 2,000 points last week, jumping 6.28% to 33,213. The technology-heavy Nasdaq Composite increased 6.85% finishing at 12,131. For the month now, the S&P 500 is up 0.65%, and the bond market is also up more than 1%.
Major international markets were mostly higher following the lead of U.S. markets except for China. Canada’s TSX was up 3.9%, while the United Kingdom’s FTSE 100 was back to its winning ways up 3.5%. On Europe’s mainland, France’s CAC 40 and Germany’s DAX rose 5.72% and 4.87%, respectively. Major markets in Asia finished the week mixed. China’s Shanghai Composite declined -1.5%, while Japan’s Nikkei added 2.2%. As grouped by Morgan Stanley Capital International, developed markets rose 3.93%. Emerging markets gained 2.21%.
Source: J.P. Morgan Asset Management, Weekly Market Recap, 5/30/22
Precious metals finished the week in the green given the continued weakness in the equity markets and rising inflation. Gold rose 1.9% to $1842.10 per ounce, while Silver gained 3.2% to $21.67. Oil finished the week mixed with Brent crude oil rising 1.3% to $112.90 per barrel, while West Texas Intermediate ticked down -0.2% to $110.28. The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, finished the week up 2.4%.
Source: J.P. Morgan Asset Management, Weekly Market Recap, 5/30/22
The end of May brought a strong surge of buying that displayed a reversal of trend that we saw earlier this year. Those sectors that underperformed the most were the best performers last week. The rally came with grossly oversold conditions in markets amid extremely negative sentiment from investors.1 The key question for most investors is whether the recent lows for the indexes (S&P 500 around 3800) in early May signals a bottoming sequence. Unfortunately, the answer to that question will not be known for several months, however, there are many clues we will look for to indicate that the market correction could be over.
Many of those clues will come from expected earnings growth for U.S. companies. While forward-looking guidance has been reduced by many companies, growth rates remain in-line with long-term expectations. Other clues will come from the U.S. economy as we see signs of slowing growth from certain areas of the country. Although economic measures are slowing, they remain in positive territory and the odds for recession this year appear minimal.2 Maintaining a close measure of economic and earnings expectations will be important in the second half of the year.
Source: J.P. Morgan Asset Management, Weekly Market Recap, 5/30/22
The market surge last week was healthy recording three straight days with 80% of stocks rising in the New York Stock Exchange (NYSE). Evidence of short covering (investors who had shorted stocks expecting prices to decline were forced to buy stocks to cover their position) helped the S&P 500 close above prior highs signaling technical analysts that strength was returning to markets.3 The index closed well shy of its important 50-day moving average and most stocks remain below their 50-day average as well. The test for the market is to see whether last week’s rally can sustain itself into the new month (note from 6/1/22: so far it is not looking likely).
Source: Bespoke Investment Group, Morning Lineup, 5/30/22
Significant gains in the most oversold sectors brought most areas of the market out of their deeply oversold conditions. Leadership in discretionary, financials, and technology reminded investors of the good old days after COVID, although energy remains a large contributor to gains in 2022. Higher oil and natural gas prices led the energy sector to another weekly gain better than 5%. Commodity prices also moved higher as the dollar weakness over the last few weeks provided some comfort. The lower dollar was largely a function of the European Central Bank reversing course in policy announcing potential rate hikes for June/July.4
Source: Bespoke Investment Group, Morning Lineup, 5/30/22
The old stock market adage “Sell in May and go away” is reflected in historical market returns for the last ten years. The idea is that many stock analysts and traders will close out positions after Memorial Day weekend to take vacation in the month of June leaving weaker demand for stock investors. The data for the last ten years confirms the historical weakness for the S&P 500 Index as the month of June has generated gains barely 50% of the time with average returns just above 1%. The three-month return, however, appears more favorable with market gains more than 90% of the time and an average return of 5.21%.
Source: Bespoke Investment Group, Morning Lineup, 5/30/22
The recent decline in long-term interest rates continued last week as the benchmark 10-year U.S. Treasury Note closed Friday with a yield of 2.74% after having marked a high point near 3.13% in early May. The 30-year U.S. Treasury Bond closed again below 3% for the week after touching 3.3% a few weeks ago. The recent decline in yields is likely due to concerns shifting from higher consumer prices to weakening U.S. economic growth.5 A slowdown in growth would likely bring consumer prices lower causing the Federal Reserve to slow their short-term rate hikes.
Source: J.P. Morgan Asset Management, Weekly Market Recap, 5/30/22
The next few weeks will reveal some important economic data adding clarity to the outlook for future growth. None will be more important than May Consumer Prices (CPI) released on Thursday, June 10th. The expectation is that consumer prices have peaked and may remain elevated for a few months before any decline is reported.6 Any surprise to the downside for CPI would likely cause bond rates to decline and stocks to rise as investors would expect the Fed to slow their current tightening policy. We will also get the final revision for 1st quarter GDP reported on June 29th – the most recent revision in May was a lower GDP growth number than was originally reported. The most recent estimate of GDP growth from the Atlanta Federal Reserve is calling for a 1.3% year-over-year increase to GDP.7
Source: Bespoke Investment Group, Fixed Income Weekly, 5/25/22
If you would like to schedule time to discuss your portfolio or the markets in detail, please call our office at (281)616-5935 or send an email to Cameron.malott@engravewealth.com. We are continually grateful for the confidence you have placed in our team. We look forward to serving your family in the years to come!
Engrave Wealth Partners Investment Committee
Bill Day, CFP®, CIMA Taylor Parker, CFP® Brian Jones, CFP®
Greg Parker Preston Baird
Paul Courtney, CFA Aaron Dirlam, CFA
FOOTNOTES AND DISCLAIMERS
Equity Price Levels and Returns: All returns represent total return for stated period. Index: S&P 500; provided by: Standard & Poor’s. Index: Dow Jones Industrial 30 (The Dow Jones is a price-weighted index composing of 30 widely traded blue chip stocks.) ; provided by: S&P Dow Jones Indices LLC. Index: Russell 2000; provided by: Russell Investments. Index: Russell 1000 Growth; provided by: Russell Investments. Index: Russell 1000 Value; provided by: Russell Investments. Index: MSCI – EAFE; provided by: MSCI – gross official pricing. Index: MSCI – EM; provided by: MSCI – gross official pricing. Index: Nasdaq Composite; provided by: NASDAQ OMX Group.
MSCI EAFE is a Morgan Stanley Capital International Index that is designed to measure the performance of the developed stock markets of Europe, Australasia, and the Far East.
Key Interest Rates: 2 Year Treasury, FactSet; 10 Year Treasury, FactSet; 30 Year Treasury, FactSet; 10 Year German Bund, FactSet. 3 Month LIBOR, British Bankers’ Association; 3 Month EURIBOR, European Banking Federation; 6 Month CD, Federal Reserve; 30 Year Mortgage, Mortgage Bankers Association (MBA); Prime Rate: Federal Reserve.
Sector Returns: Sectors are based on the GICS methodology. Return data are calculated by FactSet using constituents and weights as provided by Standard & Poor’s. Returns are cumulative total return for stated period, including reinvestment of dividends. Style Returns: Style box returns based on Russell Indexes with the exception of the Large-Cap Blend box, which reflects the S&P 500 Index. All values are cumulative total return for stated period including the reinvestment of dividends. The Index used from L to R, top to bottom are: Russell 1000 Value Index (Measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values), S&P 500 Index (Index represents the 500 Large Cap portion of the stock market, and is comprised of 500 stocks as selected by the S&P Index Committee), Russell 1000 Growth Index (Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values), Russell Mid Cap Value Index (Measures the performance of those Russell Mid Cap companies with lower price-to-book ratios and lower forecasted growth values), Russell Mid Cap Index (The Russell Midcap Index includes the smallest 800 securities in the Russell 1000), Russell Mid Cap Growth Index (Measures the performance of those Russell Mid Cap companies with higher price-to-book ratios and higher forecasted growth values), Russell 2000 Value Index (Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values), Russell 2000 Index (The Russell 2000 includes the smallest 2000 securities in the Russell 3000), Russell 2000 Growth Index (Measures the performance of those Russell 2000 companies with higher priceto-book ratios and higher forecasted growth values).
Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.
You don’t have to feel overwhelmed and ill-equipped for retirement. Live confidently knowing that your wealth is secure and your family’s legacy is protected.
Start Your Free Retirement Analysis