Weekly Economic Update

Economic Update 5-23-2022

  • Economic data for the week included gains in retail sales and industrial production. On the other hand, regional manufacturing sentiment fell back, as did several housing metrics as activity slowed along with historically-low residential home inventories.
  • Global equities were mixed on the week, with U.S. stocks down sharply once again, while foreign stocks gained ground. Bonds fared positively, with interest rates backing off of peaks. Commodities gained a bit, led by industrial metals rather than oil.

U.S. stocks started the week on a down note, with Chinese retail sales falling over -10% from a year ago, as well as a lowering of stock market estimates from well-watched Wall Street strategists. After another subsequent rally, stocks fell back again sharply mid-week along with several high-profile earnings reports in the retail space—notably Walmart and Target. After some false starts, stocks remained negative through the end of the week.

Results were again strangely mixed by sector, with energy up over a percent, followed by minor gains for defensive health care and utilities. However, consumer stocks (both cyclical discretionary and defensive staples sectors) were punished on the order of 7-8% on the week, in keeping with retail concerns noted earlier. Industrials and technology also fared poorly, each down over -3%, while real estate fell by nearly -2%. In consumer discretionary specifically, Target shares dropped close to -30% as earnings and outlook showed the impact of goods inflation and difficulty in achieving balance between consumer demand/supply. Tesla shares were also hit following the removal of the firm from the S&P 500 ESG Index, as apparent problems with culture and working conditions outweighed the focus on fossil-free electric vehicles. Consumer staples, traditionally a stalwart of defensiveness serving as a port in the storm of market volatility historically, suffered due to Walmart’s -20% decline, and a similar negative reaction with Costco.

Foreign stocks outperformed U.S. equities in local terms, with minimal change, but this turned positive with a decline in the U.S. dollar. News in Europe has been as mixed as that in the U.S., with U.K. inflation surging to 9%, although other fundamentals, such as labor markets, appear decent. Economic growth for the Eurozone was revised up a tenth to 0.3%, actually surpassing that of the U.S., while estimates for growth over the rest of the year have been lowered. The Japanese economy, on the other hand, fell back by -1% in Q1, more akin to the U.S., although inflation is far lower. Emerging markets also gained on net, with strength in Brazil, Mexico, and China. Chinese assets were boosted by the central bank decision to cut the prime lending rate in efforts to stimulate the economy out of recent pandemic stagnation, as well as hopes that the Shanghai lockdown’s ease will continue.

U.S. bonds fared positively on the week, as interest rates continued to fall back from highs and investors moved away from equities into the recently higher-yielding bond market. Treasuries outperformed all corporates, as spreads also widened. Foreign bonds performed positively across the board in developed and emerging markets, helped most by a decline in the dollar.

Commodities ticked up slightly across most sectors, but were led higher by both industrial metals (copper and aluminum) and precious metals (silver). The price of crude oil was little changed on net, settling at just over $110/barrel, although natural gas rose another 5%. The prior week’s ban of wheat exports by India drove the price significantly higher, resulting in a Chicago market trading limitation, as global supplies were already strained. While nowhere near a major a player as Russia or Ukraine in the world grain markets, the quick ban due to low supplies rattled commodity market sentiment before falling back to earth by the end of the week as concerns over Europe’s supply were described as ‘overblown’.

Period ending 5/20/20221 Week (%)YTD (%)
DJIA-2.78-13.29
S&P 500-3.00-17.67
NASDAQ-3.77-27.20
Russell 2000-1.05-20.67
MSCI-EAFE1.50-14.43
MSCI-EM3.13-15.39
Bloomberg U.S. Aggregate0.59-9.18
U.S. Treasury Yields3 Mo.2 Yr.5 Yr.10 Yr.30 Yr.
12/31/20210.060.731.261.521.90
5/13/20221.032.612.892.933.10
5/20/20221.032.602.802.782.99

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. 

FOR ADVISOR USE ONLY – NOT FOR DISTRIBUTION TO THE PUBLIC WITHOUT PRIOR APPROVAL FROM YOUR RESPECTIVE FIRM’S COMPLIANCE DEPARTMENT

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