Monthly Market Insights | June 2022
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U.S. Markets |
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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 FedThe 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 GrowthEconomic 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 RallyThe 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. Sector ScorecardIndustry 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
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What Investors May Be Talking About in June |
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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. |
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World Markets |
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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
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Indicators |
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Gross Domestic Product (GDP)The second estimate of the first quarter’s GDP growth was revised lower, from an annualized -1.4 percent to -1.5 percent.10 EmploymentEmployers 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 SalesConsumers 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 ProductionIndustrial output rose 1.1 percent in April—more than double Wall Street estimates.13 HousingHousing 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 (CPI)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 OrdersOrders for long-lasting goods rose 0.4 percent, led by non-defense aircraft and parts orders.18 |
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The Fed |
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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 By the Numbers: Surf's Up |
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, or state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, timeframe, and risk tolerance. The forecasts or forward-looking statements are based on assumptions, subject to revision without notice, and may not materialize. 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. The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. The S&P 500 Composite Index is an unmanaged group of securities considered to be representative of the stock market in general. The Nasdaq Composite is an index of the common stocks and similar securities listed on the Nasdaq stock market and considered a broad indicator of the performance of stocks of technology and growth companies. The Russell 1000 Index is an index that measures the performance of the highest-ranking 1,000 stocks in the Russell 3000 Index, which is comprised of 3,000 of the largest U.S. stocks. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark for the performance in major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility. The Hang Seng Index is a benchmark index for the blue-chip stocks traded on the Hong Kong Stock Exchange. The KOSPI is an index of all stocks traded on the Korean Stock Exchange. The Nikkei 225 is a stock market index for the Tokyo Stock Exchange. The SENSEX is a stock market index of 30 companies listed on the Bombay Stock Exchange. The Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange. The Bovespa Index tracks 50 stocks traded on the Sao Paulo Stock, Mercantile, & Futures Exchange. The IPC Index measures the companies listed on the Mexican Stock Exchange. The MERVAL tracks the performance of large companies based in Argentina. The ASX 200 Index is an index of stocks listed on the Australian Securities Exchange. The DAX is a market index consisting of the 30 German companies trading on the Frankfurt Stock Exchange. The CAC 40 is a benchmark for the 40 most significant companies on the French Stock Market Exchange. The Dow Jones Russia Index measures the performance of leading Russian Global Depositary Receipts (GDRs) that trade on the London Stock Exchange. The FTSE 100 Index is an index of the 100 companies with the highest market capitalization listed on the London Stock Exchange. Please consult your financial professional for additional information. Copyright 2022 FMG Suite. |
1. WSJ.com, May 31, 2022
2. BLS.gov, May 11, 2022
3. BEA.gov, May 27, 2022
4. SectorSPDR.com, May 2022
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