Weekly Market & Economic Update – 5/2/22

Welcome to May, folks.

Markets have seen better days. It seems as though market participants have seen this kind of economic outlook before? Huge swings in price seem to have become common place. Speculators taking a proactive approach – now pricing in a recession prior to the systemic, fundamental, fallout we used to wait for.

Regardless, the economic outlook is running into some torrential down pours. A trifecta of concerns, if you will. There seems to be no end in sight for the pervading crisis in Ukraine – which continues to put pressure on commodities such as seed oils, wheat, barley, corn and others. More interest rate hikes are coming and they will be aggressive – CME group estimating a 50-basis point jump in May, 75-basis point in June, and another 50-basis point hike bringing the target federal-funds-rate to 200-225 basis points in July – resulting in an inverted yield curve which largely implies an impeding recession. And, lastly, China’s strict zero-Covid strategy is again instituting lockdowns, mass testing, quarantines, and border closures to contain the virus. With full to partial lockdowns in at least 27 cities across the country – restrictions affecting up to 180 million people. China’s lockdowns will inevitably result in further supply chain issues for the global economy.

Difficult months lay ahead, but this market environment will certinaly present many opportunities and we hope to help guide you through it all. Schedule a call with me HERE to learn more.

Below is your Weekly Market & Economic Update by the numbers, as well as, a quick analysis of the Nasdaq.

Warmly,

Mark Sauer
info@AllOneWealth.com
+1(310)355-8286

Weekly Market Update

• Global Equities:   Equity markets were volatile in weekly trading as mega-cap US corporations reported earnings. After an up-and-down week ending in a late-Friday selloff, the S&P 500 finished down –3.3%, the Nasdaq dipped –3.9%, and the Dow Jones Industrial Average shed –2.5%. Developed International Equities were also under pressure, losing -2.6%, while Emerging Markets outperformed by ending the week flat.
• Fixed Income: 10-Year Treasury yields fell back as investors sought relative safe havens amidst equity volatility, but ultimately ended the week back up near 2.9% ahead of the Federal Reserve May policy meeting. High yield bonds continued their lengthy downtrend, losing another -0.9% during the week. High yield bond mutual funds and ETFs saw slight outflows of $118 million during the weekly period ended April 27th.
• Commodities: Oil prices were up slightly, to a little over $104 as of Friday afternoon. US energy firms continued to bring additional capacity online, adding 3 oil and gas rigs to the active count during the week. The oil and gas rig count has increased, slowly but steadily, for a record 21 consecutive months.

Weekly Economic Update

• GDP: US Gross Domestic Product unexpectedly contracted in the first quarter, -1.4%, as a surge in imports and slow inventory growth offset strong consumer spending. Supply chain issues were once again to blame for the challenge’s businesses faced, with reduced government spending also weighing on GDP growth. The decline is unlikely to sway the Federal Reserve from their commitment to hike rates aggressively in the next several policy meetings.
• FOMC May Meeting: The Federal Reserve will hold its May policy meeting on May 3-4, with market participants widely anticipating a 50-basis-point interest rate hike as the outcome. Expectations for the following meeting in June are skewing towards an additional 50 basis point hike, although there is approximately a 10% chance we see a 75-basis point move in June, according to data from CME Group.
• Earnings Update: Markets were on edge for earnings after Netflix (NFLX) missed badly the prior week. Among the positive highlights were Facebook parent Meta (FB) beating estimates and rising sharply, Microsoft (MSFT) posting solid cloud growth, and Apple (AAPL) performing well and increasing buybacks. The big miss came from Amazon (AMZN), despite solid cloud growth in Amazon Web Services division, with a $7.6 billion loss from its investment in electric vehicle maker Rivian (RIVN).

Chart of the Week: Nasdaq

Below is a two-year view of the Nasdaq Composite (as of May 2, 2022). After a sharp rebound in March, the Nasdaq rolled over once again, and the downtrend has turned into a full-fledged bear market with the peak-to-trough decline currently exceeding -23%. The Nasdaq will continue to face challenges in the rising interest rate environment as high-growth names rely more heavily on debt. With mixed earnings results failing to trigger a reversal, we are likely looking at more selling pressure until we hit investor capitulation and oversold conditions.

Furthermore, the Nasdaq failing to hold the 500-Day-Moving-Average (RED line) is a clear sign of further market deterioration – the 500DMA is typically the market’s largest long-term support. Further indication that tough days lay ahead.