Market Commentary – May 2022
May was a volatile month for Wall Street. Stocks began May where April ended, with losses. In fact, it wasn't until the last week of May that stocks posted gains. Throughout the month, investors had to face the prospects of an economic slowdown impacted by accelerating inflation, rising interest rates, the ongoing war in Ukraine, and lukewarm corporate earnings reports. Despite suggestions from Federal Reserve Chair Jerome Powell that the central bank is not likely to raise interest rates by 75 basis points, stubbornly high inflation has set the Fed on a path of quantitative tightening and interest-rate advances that presents a risk to economic growth.
Crude oil prices gradually rose throughout the month, only to surge on the last day of May after the European Union imposed an immediate ban on two-thirds of all Russian oil imports in a further response to its invasion of Ukraine. Crude oil prices advanced over 10.0% to nearly $115.00 per barrel. Gas prices also continued to increase in May, reaching record highs along the way. The national average retail price for regular gasoline was $4.59 per gallon on May 23 rd, up from $4.12 on April 25 th and $1.57 over a year ago. Analysts suggest that gas prices are likely to continue to increase with rising crude oil prices, the impact of the ongoing Russia/Ukraine war, and demand exceeding refinery output.
First-quarter gross domestic product contracted at an annualized rate of 1.5% (see below) after increasing nearly 7.0% to end 2021. Nevertheless, there were some positive signs in May. Consumer spending continued to increase and some high-end retail earnings reports gave investors a reason to believe the economy could weather the storm.
A late-month rally helped push some of the benchmark indexes higher to close May in the black. The Dow, the S&P 500, the Russell 2000, and the Global Dow each finished ahead of their respective April closing values. While tech shares rebounded somewhat at the end of the month, the Nasdaq still closed May in the red.
Ten-year Treasury yields ended the month about where they began. Gold prices decreased nearly 3.0% in May. The U.S. dollar road the ebbs and flows of the stock market and bond prices, ultimately ending the month lower than it started.
As of May
|Monthly Change||YTD Change|
|S & P 500||4,766.18||4,131.93||4,132.15||0.01%||-13.30%|
|Federal Funds||0.00% – 0.25%||0.25% – 0.50%||0.75% – 1.00%||50 bps||75 bps|
|10-yr Treasury||1.51%||2.88%||2.84%||-4 bps||133 bps|
*Chart reflects price changes, not total return
Last Month’s Economic News
- Employment:Employment rose by 428,000 in April, about the same increase as in March, while the unemployment rate remained at 3.6%. The number of unemployed persons remained relatively unchanged at 5.9 million. These measures are little different from their pre-pandemic values in February 2020 (3.5% and 5.7 million, respectively). The number of persons who were unable to work because their employer closed or lost business due to the pandemic fell to 1.7 million — down from 2.5 million in the previous month. The labor-force participation rate decreased 0.2 percentage point to 62.2% in April and the employment-population ratio fell by 0.1 percentage point to 60.0%. In April, average hourly earnings rose by $0.10, or 0.3%, to $31.85. Over the last 12 months, average hourly earnings rose by 5.5%. The average work week was unchanged at 34.6 hours in April.
- There were 210,000 initial claims for unemployment insurance for the week ended May 21 st, up from a month earlier when there were approximately 180,000 new claims filed. As of May 14, there were 1,346,000 total claims for unemployment benefits. A year ago, there were 3,618,000 total claims for unemployment insurance benefits.
- FOMC/interest rates:The Federal Open Market Committee met at the beginning of May, and in a move specifically directed at tempering rising inflationary pressures, the Committee increased the federal funds target range by 50 basis points. The FOMC also decided to begin reducing its balance sheet starting June 1 st until the size can "maintain securities holdings in amounts needed to implement monetary policy efficiently and effectively in its ample reserves regime."
- GDP: Gross domestic product contracted at an annualized rate of -1.5% in the first quarter of 2022 compared with a 6.9% advance in the fourth quarter of 2021. The decrease in GDP primarily reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending; while imports, which are a subtraction in the calculation of GDP, increased. Personal consumption expenditures (3.1%), nonresidential fixed investment (9.2%), and residential fixed investment (0.4%) increased. Spending on goods was unchanged, while spending on services climbed 4.8%. The personal consumption price index, a measure of inflation, increased 7.0% in the first quarter after advancing 6.4% in the fourth quarter. Imports increased 18.3% in the first quarter, while exports fell 5.4%.
- Inflation/consumer spending:According to the latest Personal Income and Outlays report for April, personal income increased 0.4% and disposable personal income rose 0.3% after rising 0.5% and 0.4%, respectively, in March. Consumer spending increased 0.9% following a 1.4% jump in March. Consumer prices rose 0.2% in April after advancing 0.9% the previous month.
- The Consumer Price Index increased 0.3% in April after climbing 1.2% the previous month. Increases in the indexes for shelter, food, airline fares, and new vehicles were the largest contributors to the April CPI increase. Food prices rose 0.9% in April after advancing 1.0% in March, for a 12-month increase of 9.4%, the largest year-over-year gain since April 1981. The gasoline index fell 6.1% in April but is up 43.6% since April 2021. The CPI has risen 8.3% over the last 12 months, a slight decrease from the 8.5% March figure. Prices that producers receive for goods and services jumped 0.5% in April following a 1.6% increase in March. Producer prices have increased 11.0% since April 2021. Prices less foods, energy, and trade services increased 0.6% in April after climbing 0.9% the previous month. For the year, prices less foods, energy, and trade services moved up 6.9%.
- Housing:Sales of existing homes declined for the third consecutive month, falling 2.4% in April after dropping 2.7% in March. Year over year, existing home sales were 5.9% under the April 2021 estimate. According to the latest survey from the National Association of Realtors ®, home shoppers are feeling the effects of rising mortgage rates and higher home prices. The median existing-home price was $391,200 in April, up from $374,800 in March and 14.8% more than April 2021 ($347,100). Unsold inventory of existing homes represents a 2.2-month supply at the current sales pace. Sales of existing single-family homes also fell in April, down 2.5% after dropping 2.7% in March. Since April 2021, sales of existing single-family homes have fallen 4.8%. The median existing single-family home price was $397,600 in April, up from $381,300 in March.
- Sales of new single-family homes fell 16.6% in April after decreasing 11.7% (revised) in March. The median sales price of new single-family houses sold in April was $450,600 ($435,000 in March). The April average sales price was $570,300 ($522,500 in March). The inventory of new single-family homes for sale in April represented a supply of 8.3 months at the current sales pace, up from March's 5.9-month supply. Sales of new single-family homes in April were 26.9% below the April 2021 estimate.
- April saw new orders for durable goods increase 0.4% following a 0.6% March increase. A 0.6% increase in transportation equipment led the April increase in new orders. Excluding transportation, new orders rose 0.3% in April. In addition to the increase in transportation equipment, areas that contributed to the overall April increase in new durable goods orders included primary metals (0.6%), machinery (1.0%), and nondefense aircraft and parts (4.3%). New orders for nondefense capital goods increased 0.4% in April, while new orders for defense capital goods rose 2.5%. Since April 2021, new orders for durable goods have increased 10.5%.
- International markets:Several European Union leaders pledged to cut oil purchases from Russia, which sent crude oil prices higher. Eurozone inflation reached an annualized rate of 8.1% in May, impacted by the Russia/Ukraine war and corresponding sanctions imposed by European governments. The potential of an economic slowdown in China and supply-chain disruptions due to the pandemic and the aforementioned war weighed on investors. China's economy declined for the third consecutive month in May, although at a slower pace than in April, as COVID restrictions began to ease.
- Consumer confidence:The Conference Board Consumer Confidence Index ® decreased slightly in May. The index stands at 106.4 in May, down from 108.6 in April. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, decreased to 149.6 in May, down from 152.9 in April. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, inched lower to 77.5 in May from 79.0 in April.
Eye on the Year Ahead
The Federal Open Market Committee meets in June and will almost certainly increase the federal funds target interest rate another 50 basis points, following a similar measure the last time the Committee met in May. Several economic indicators in April began to show that the economy may be slowing. The May data, available in June, will likely continue this trend.
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