Flash Market Commentary- June 2022
As we start the month of June we would like to briefly reflect on what has transpired so far in 2022 and provide perspective regarding what might be in front of us.
Many may recall us mentioning that midterm election years tend to have more volatility, but also opportunity. So far, unfortunately, we have seemingly experienced much more of the former than the latter as this has been the fourth-worst beginning to a year since 1927, only surpassed by 1932, 1940, and 1970.
The reasons for this poor start are numerous, and well documented, led by the Federal Reserve taking a more aggressive stance than initially expected, due primarily to continued, elevated inflation pressures. Additional headwinds have included Russia’s invasion of Ukraine, a spike in oil prices, China Covid lockdowns and related supply chain impacts, plus a potential slowdown in the housing market given the rise in interest/mortgage rates. Speaking of interest rates, the material increase year-to-date has certainly had a negative impact on bond prices and overall fixed income returns as well.
What happens going forward, particularly in the short-term, is fodder for broad and diverse speculation, including whether or not the U.S. will fall into a recession, either this year or next. Many prognosticators have this at more or less a 50/50 call currently. However, we continue to note the S&P 500 has not declined in a year post-midterm elections since 1946, which after a recently concluded seven-week stretch of negative stock returns would be a very welcome sight. The end of this difficult streak came with a bang as domestic stocks posted a 6%+ return the week of May 23, once again putting a damper on market timing prospects. The end result for the S&P 500 was a very slight positive return for the month. In regard to market timing, according to Bloomberg, if one was to subtract the five worst days of 2022, the S&P return would be 2.6%. Conversely, missing the five best days of the year so far would result in a decline of 24%. Quite a spread.
For the remainder of 2022, it would seem logical to quote the historical axiom, “Don’t Fight the Fed”, as most investors are looking for signals that the Federal Reserve has tamed inflation without causing a recession; not a particularly easy task.
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Information provided is for illustrative and discussion purposes only; should not be considered a recommendation; and is subject to change. Some information provided above may be obtained from outside sources believed to be reliable, but no representation is made as to its accuracy or completeness. Please note that investments involve risk, and that past performance does not guarantee future results.