Monthly Market Recap: June 1, 2022

May Market Recap

June 1, 2022 

Zero-point-zero-one percent (0.01%).

That’s how much the S&P 500 gained last month. And to be honest, we’re rounding up. The official math was actually 0.005%. Is that something worth celebrating? Perhaps not. No one will be popping any champagne corks after reviewing their May 31 statements, but even the most modest of positive returns does represent a step in the right direction following April’s aggressive selloff.

Six of the 11 sectors in the S&P 500 moved higher in May, led by Energy (+15%) and Utilities (+3.8%). Five equity sectors booked losses. Of those, Real Estate (-5.1%), Consumer Discretionary (-4.9%), and Consumer Staples (-4.7%) performed the worst.

Index May 2022 YTD 2022
Dow +0.04% -9.21%
S&P 500+ +0.01% -13.30%
NASDAQ -2.05% -22.78%

High inflation and tighter monetary policy from the Federal Reserve remain the angry elephants in the proverbial room that investors are trying to navigate. As far as market obstacles, expect those two to remain at the top of the list for the foreseeable future.

Inflation actually slowed in May. The most recent Consumer Price Index revealed year-over-year inflation of 8.3%, lower than a month earlier (8.5%), but still higher than consensus estimates.

On May 4, the Fed raised its benchmark interest rate by 0.50% and announced plans to begin “passive tightening.” Beginning in June, the Fed will not reinvest the interest paid by its existing bonds and will not reinvest the principal from maturing bonds. A maximum of $95 billion per month will effectively roll off the Fed’s balance sheet.

More significantly, Fed Chair Jerome Powell said the Fed was “not actively considering” rate hikes as large as 0.75%. Equities initially took Powell’s comments as a positive. The Dow rallied 932 points (2.8%) on May 4. The S&P 500 and NASDAQ bounced even more. Those gains, however, did not last long. On the following day (May 5), the Dow fell 1,063 points (3.1%). The S&P lost 3.6%. The NASDAQ dropped 5%.

It’s the first time since March 2020 that US stocks delivered such whipsaw results on consecutive days. High volatility is certainly indicative of a bear market, and while the S&P has so far avoided a 20% peak-to-trough decline (if we’re sticking with end-of-day prices), it is basically semantics at this point.

Ignoring the Energy sector – up nearly 56% year-to-date thanks to skyrocketing oil prices – the S&P has already ventured well into bear market territory. The tech-heavy NASDAQ and smaller-cap Russell 2000 both lost more than 30% at their low points.

Everyone wants to know whether those mid-May lows represent “the bottom.” There’s no way to know for sure, but history is on our side in terms of forward-looking returns.

The first 100 trading days of 2022 (S&P -16.5%) make this one of the six worst starts to a calendar year since 1930. In the other five, US stocks were positive over the next seven months every time, with the S&P gaining 19% on average through year-end.

Equities did stage a significant rally in the final week of May. The S&P 500 increased 7% in those five trading days, its best week of the year. It also snapped a string of seven negative weeks in a row. Perhaps the tide is beginning to turn.

Bond prices also stabilized in the second half of May. 10-year US Treasury yields climbed as high as 3.17% on May 9 before reversing course and ending the month at 2.84% (slightly below the 2.89% yield from a month earlier). The major US bond benchmarks have lost roughly 10% year-to-date through May 31, though our individual bond ladders employed in Marks Group portfolios have held up much better.

The May 31 lifting of government-mandated lockdowns in China offered another glimmer of hope for investors.  The Chinese economy and global supply chains were severely disrupted following a spike in new COVID-19 cases and the resulting lockdowns.

International equities outperformed in May. Non-US Developed Markets (as represented by the MSCI EAFE Index) increased 2%. Emerging Markets gained 0.6%.

US mortgage rates hit their highest level since 2009. The rate on a 30-year fixed loan was 5.3% at month’s end, essentially double the rate from the low point in January 2021.

The US jobs report showed national unemployment remains exceptionally low at 3.6%.

Gasoline prices hit another record high with average costs of $4.69 per gallon, according to AAA. It’s now 50% more expensive to fill your car with gas than it was a year ago ($3.11 per gallon).

West Texas Intermediate Crude oil trades near $115 per barrel, up another 9.5% in May.

 

 

 

Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.

Marks Group Wealth Management performs in-house analysis on companies.  Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings.  The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice.  Additional information is available upon request.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult with us at Marks Group Wealth Management or another trusted investment adviser.  Mention of individual equities in this commentary are for informational purposes only and are not intended to represent a recommendation.

Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets.  No strategy assures success or protects against loss.  Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Past performance is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.