In this month’s recap: A powerful late-month rally helped recoup losses from earlier in the month.
Monthly Economic Update
Presented by Brower Financial Group, June 2022
Stocks were mixed in May as a powerful rally in the final week of trading helped recoup losses from earlier in the month.
The Dow Jones Industrial Average picked up 0.04 percent, while the Standard & Poor’s 500 Index added 0.01 percent. The Nasdaq Composite fell 2.05 percent.1
It’s All About the Fed
The month began on a solid note as stocks rallied following the Fed’s announcement of a 50-basis-point hike in the federal funds rate. The market was relieved to hear comments from Fed Chair Jerome Powell, who said that a 75-basis-point increase was not actively being considered.
This rally lost momentum as investors reassessed the Fed’s commitment to a tighter monetary policy and digested some economic news that fanned inflation fears.
Focus Moving from Inflation?
Over the course of the month, inflation concerns diminished slightly relative to economic growth worries. Consumer price inflation data showed prices rising at a pace near 40-year highs, but markets responded well, perhaps because the pace of price increases was down from the previous month.2
Inflation fears were further soothed later in the month when the Personal Consumption Expenditures Price Index, the Fed’s preferred measure of inflation, rose at a slower rate than markets had expected.3
Mixed Signals on Economic Growth
Economic growth concerns moved to the forefront due, in part, to weak economic data out of China. Disappointing earnings from major U.S. retailers also heightened fears about domestic growth. But upbeat news from several mid-size and discount retailers suggested the American consumer remained healthy.
Fed Sparks Rally
The May 25 release of the Federal Open Market Committee (FOMC) meeting minutes ignited the sharp rally in stock prices.
To investors, the meeting minutes suggested that the Fed was unlikely to pursue a more aggressive tightening stance. Investor sentiment was also lifted by comments from Fed officials who indicated that rate hikes could take a pause after the expected June and July hikes.
Industry sectors that managed to post gains in May included Communications Services (+1.9 percent), Energy (+16.03 percent), Financials (+2.78 percent), Health Care (+1.49 percent), Materials (+1.18 percent), and Utilities (+4.31 percent). The remaining sectors moved lower, with losses in Consumer Discretionary (-5.12 percent), Consumer Staples (-4.08 percent), Industrials (-0.46 percent), Real Estate (-5.11 percent), and Technology (-0.69 percent).4
What Investors May Be Talking About in June
The U.S. dollar has been strengthening against other currencies all year. The U.S. Dollar Currency Index, which tracks the dollar’s value against a basket of major international currencies, has risen about 8 percent since the start of the year.5
The value of the dollar is closely watched because roughly 40 percent of the aggregate earnings of S&P 500 companies come from overseas sales.6
A strong dollar helps U.S. shoppers buy imported products at lower prices, but it also makes U.S. exports more expensive to overseas customers, which may show up in second-half company results.
Tip of the Month
If you are getting married and want to buy a home, consider setting up a wedding registry that collects money specifically for a down payment.
World markets trended higher as China began to emerge from its COVID-19 lockdown. The MSCI EAFE Index gained 1.45 percent in May.7
Major European markets mainly moved higher, with increases in Spain (+3.11 percent), Germany (+2.06 percent), and the U.K. (+0.84 percent). France’s CAC 40 lost 0.99 percent.8
Stocks in the Pacific Rim markets were mixed. Australia lost 3.01 percent while Japan picked up 1.61 percent.9
Gross Domestic Product: The second estimate of the first quarter’s GDP growth was revised lower, from an annualized -1.4 percent to -1.5 percent.10
Employment: Employers added 428,000 jobs in April, the 12th consecutive month of 400,000-plus job growth. The unemployment rate was unchanged at 3.6%. Average hourly earnings rose 5.5% year-over-year, although that remains below inflation over the same period.11
Retail Sales: Consumers continued to spend in April, with retail sales climbing 0.9 percent. Since retail sales are not adjusted for inflation, it’s difficult to say how much of this increase is attributable to higher prices versus higher demand.12
Industrial Production: Industrial output rose 1.1 percent in April—more than double Wall Street estimates.13
Housing: Housing starts slipped 0.2 percent, although they were higher year-over-year by 14.6 percent.14
Sales of existing homes fell to their slowest pace since the start of the COVID-19 pandemic, declining 5.9 percent from a year earlier (April 2021). Tight inventory, rising prices, and higher mortgage rates weighed on prospective buyers.15
New home sales slipped 16.6 percent from March 2022 levels and dropped 26.9 percent from April 2021 levels. There was a nine-month supply of new home inventory in March 2022. A six-month supply is considered balanced between buyer and seller.16
Consumer Price Index: Prices of consumer goods rose 8.3 percent from a year ago, coming in slightly below last month’s pace but above consensus estimates. Excluding food and energy prices, core inflation jumped 6.2 percent.17
Durable Goods Orders: Orders for long-lasting goods rose 0.4 percent, led by non-defense aircraft and parts orders.18
Quote of the Month
“There will come a time when you believe everything is finished; that will be the beginning.”
At its May FOMC meeting, the Federal Reserve raised interest rates by half a percentage point. The Fed governors also announced that they would begin to scale back the Fed’s $9 trillion balance sheet by $95 billion per month.
In a post-meeting press conference, Fed Chair Jerome Powell also said that the FOMC was not actively considering a 75-basis-point hike, although there may be multiple 50-basis-point hikes in the coming months.19
10 YR TREASURY
Sources: Yahoo Finance, May 31, 2022.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalization in the FTSE Developed Europe Index. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE TWSE Taiwan 50 Index is a capitalization-weighted index of stocks comprising 50 companies listed on the Taiwan Stock Exchange developed by Taiwan Stock Exchange in collaboration with FTSE. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
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