Please find our most recent market review below. We hope these perspectives are valuable to you.
– The AdvicePeriod Team
Monthly Market Review
By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer
U.S. stocks ended May with mixed results —but not before experiencing a great deal of volatility.
The S&P 500 finished up just 0.2% after recovering from a mid-month dip of 5% that left it nearly 20% lower than its year-end 2021 high. The Dow Jones Industrial Average, meanwhile, ended May up .3% , despite a 5.5% dip that brought it into correction territory, defined as 10% lower than its previous high. The technology-heavy Nasdaq Composite Index ended the month down 1.9%. At one point late in the month, it was 29% below the all-time high it hit in December.
Markets continued to face the familiar headwinds of inflation, monetary tightening, Covid and geopolitical tensions. Tech stocks were once again the epicenter of stocks’ troubles in May, with Meta Platforms (-3.4%), Amazon (-3.3%), Microsoft (-1.8%) and Apple (-5.4%) all down significantly for the month.
A key question among market watchers is whether inflation and long-term interest rates have stabilized or are likely to move higher. The Consumer Price Index in April was 8.3%, down from 8.5% in March. The interest rate on the benchmark 10-year Treasury bond declined in May to 2.84% from 2.88% at the end of April. At one point early in the month, the 10 year surpassed 3.1%.
Meanwhile, the Federal Reserve (Fed) has signaled to markets that it will continue raising short-term interest rates aggressively. It hiked the fed funds rate by 0.5% in May and is poised to do so again in June and July. As part of its inflation-fighting campaign, the central bank also plans to sell $47.5 billion in bonds per month, starting in June.
On the employment front, U.S. payrolls increased by 390,000 in May, solidly beating expectations as strong job growth continued. Leisure and hospitality led the way in hiring as Americans continued to return to pre-Covid lifestyles. The unemployment rate held steady at 3.6%, and average hourly earnings rose slightly. Rising wages—they’re now up 5.2% from a year ago—help offset cost of living expenses, but they are likely to contribute to pressure on corporate profit margins for the balance of 2022. Negative earnings news at the end of May from both Walmart and Target highlighted this point.
The outlook for gross domestic product (GDP)—the total output of the country’s goods and services—is tepid. Following a 1.5% decline in GDP in the first quarter, the Atlanta Fed projects 1.3% growth in the second quarter.
While experts can make educated guesses about the direction of the economy and the markets, none of them has a crystal ball. Jumping in and out of investments based on the day’s headlines remains a good way to ensure that you’ll underperform the market in the long term. Our advice remains unchanged: Create a long-term investment strategy with your financial advisor that takes into account your goals, time horizon and tolerance for volatility and stick with it.
I have enjoyed offering you my perspective on the markets in this monthly commentary. Going forward, Jeff Krumpelman, chief investment strategist and head of equities, will provide his perspective on what’s happening in the markets including tracking the ongoing effects of inflation, the fundamental data we monitor and other factors that impact U.S. markets.
The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite are unmanaged indexes that cannot be directly invested into. Past performance does not guarantee future results.
This is provided for informational and educational purposes only and does not consider any individual personal, financial, legal or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but we do not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Investing involves risk and the potential to lose principal. Consult your financial professional before making any investment decision.
Investment advisory services are provided through Mariner Platform Solutions, LLC dba AdvicePeriod (“AdvicePeriod”). AdvicePeriod is an investment adviser registered with the SEC, headquartered in Overland Park, Kansas. Registration of an investment advisor does not imply a certain level of skill or training. AdvicePeriod is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which AdvicePeriod transacts business and maintains clients. AdvicePeriod is either notice filed or qualifies for an exemption or exclusion from notice filing requirements in those states. Any subsequent, direct communication by AdvicePeriod with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about AdvicePeriod, including fees and services, please contact AdvicePeriod or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you invest or send money.
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What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks
Trailing 10 Years Numbers As of December 31st, 2020 – S&P Spiva Scorecard
Percentage of US large-cap funds that underperformed their benchmarks
US large-cap benchmark:
Percentage of international funds that underperformed their benchmarks
S&P International 700
Percentage of emerging market funds that underperformed their benchmarks
Emerging Markets benchmark:
The S&P Dow Jones SPIVA Scorecard compares actively managed funds against their respective benchmarks semiannually.