Well, it happened.
We knew markets were going to continue their wild ride, and here we are.
Stocks slid into bear market territory after a bad May inflation report showed prices rose at the fastest pace since 1981.1
It's clear the Federal Reserve's efforts to cool inflation haven't borne fruit yet, and investors are nervous.
In response to these concerns about inflation, the Fed raised the benchmark interest rate by another 0.75 points, the most aggressive hike in nearly three decades.2
Their move will hopefully yield relief from rising prices but also means the cost of borrowing will go up, which could dent business and consumer spending.
Should I be worried about markets?
Cautious, yes. Wary, perhaps. Afraid or worried? No.
- Many of the stocks leading the fall were highflyers during the pandemic, so the pullback could be a healthy correction of overblown prices.3
- Bear markets don't last forever. On average, they tend to linger for roughly 15 months. However, the 2020 bear market only lasted 33 days.4
- Half of the market's best days have happened during a bear market, so we expect some good days ahead.5
To give you some historical perspective here’s what happened during the last few bear markets:
You can see in a couple of cases, markets bounced back within months. However, the 2008 bear market was a sustained pullback that lasted much longer.
Is history always an accurate predictor of the future? Definitely not. But we can look to it for hints about what may come.
What happens next?
Markets will likely continue to be extremely volatile over the next weeks and months as investors digest the Fed's aggressive rate hikes as well as concerns about an economic slowdown.
The latest estimates still don't point to a recession in 2022, but that could change.6
On the other hand, the next rounds of inflation data might show that prices are cooling off, which could give the Fed breathing room and avoid more aggressive hikes later.
We'll have to wait and see.
What should I do now?
Great question. First of all, don't panic.
We've been expecting wild market behavior and we've prepared for it.
The absolute worst thing you can do right now is to hit the eject button and bail on your investment strategy.
It's impossible to perfectly time your reentry into markets and missing the ride back up could have a painful impact on your returns.
And market downturns can also create opportunities for selective bargain hunting if we stay flexible.
Bottom line: markets like these are natural and expected.
We’re here, we’re watching markets, and we’ll reach out with specific recommendations if we have them.
Have questions? Email or give us a call. We’re always here to help.
Your Eagle Wealth Team
June Market Commentary Now Available
Sorting through skewed information from the media and dauting financial headlines is no easy task. That’s why we’re here to break down some of the complex data for you.
In this month’s video, we analyze the recent volatility and discuss the driving forces in the economy right now. Check out the video here.
The Week on Wall Street
Stocks moved lower last week as recession fears deepened following a Fed hike in interest rates and weak economic data.
The Dow Jones Industrial Average fell 4.79%, while the Standard & Poor’s 500 dropped 5.79%. The Nasdaq Composite index slid 4.78% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slumped 4.51%.1,2,3
Stocks were under pressure all week due to inflation worries, higher yields, and rising recession concerns. In advance of the much-awaited mid-week meeting of the Federal Open Market Committee (FOMC), bond yields jumped, and stocks retreated on speculation that the Fed might raise rates by 75 basis points. When the Fed announced a 75 basis point hike on Wednesday, stocks rebounded strongly.
The enthusiasm was short-lived. Stocks resumed their slide on Thursday as global central banks followed with their own rate hikes. Recession fears grew based on a weak housing starts report and a contraction in the Philadelphia Fed Business Index–the first contraction since May 2020.4
Fed Rate Hike
The Federal Reserve announced a 0.75% hike in the federal funds rate, making it the biggest rate increase since 1994 and signaling its commitment to address inflation. The report from last week’s FOMC meeting also indicated new rate projections, showing that all members expect rates to rise to at least 3.0% by year-end, with half the members expecting rates to rise to 3.375%.5
The 75 basis point rate increase was a late-developing change from earlier Fed guidance of a 50 basis point increase. The change of heart was in response to recent inflation data and rising inflationary expectations.6
THE WEEK AHEAD
KEY ECONOMIC DATA
Tuesday: Existing Home Sales
Thursday: Jobless Claims. Purchasing Managers’ Index (PMI)
Friday: New Home Sales. Consumer Sentiment
Source: Econoday, June 17, 2022
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
COMPANIES REPORTING EARNINGS
Tuesday: Lennar Corporation (LEN)
Wednesday: KB Home (KBH)
Thursday: FedEx Corporation (FDX), Darden Restaurants, Inc. (DRI)
Source: Zacks, June 17, 2022
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. 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. Companies may reschedule when they report earnings without notice.
Any companies mentioned are for informational purposes only, and this should not be considered a solicitation for the purchase or sale of their securities. Any investment should be consistent with your objectives, time frame, and risk tolerance
1 - https://www.cnbc.com/2022/06/10/consumer-price-index-may-2022.html
3 - https://www.wsj.com/articles/bull-markets-winners-dragged-the-s-p-500-into-a-bear-market-11655184522
4 - https://www.schwab.com/learn/story/market-volatility
5 - https://www.hartfordfunds.com/practice-management/client-conversations/bear-markets.html
6 - https://www.marketwatch.com/story/the-u-s-is-likely-to-fall-into-recession-in-2023-says-survey-of-economists-11655111407
The S&P 500 is an unmanaged composite index considered to be representative of the U.S. stock market in general. Returns based on closing price performance. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. For illustrative purposes only. Chart source: https://www.wsj.com/livecoverage/stock-market-today-dow-jones-bitcoin-fed-rates-06-14-2022/card/how-the-s-p-500-performs-after-closing-in-a-bear-market-yBwgfJwW8HGSNJaKg6LB
Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
Market Update Disclosures:
1. The Wall Street Journal, June 17, 2022
2. The Wall Street Journal, June 17, 2022
3. The Wall Street Journal, June 17, 2022
4. CNBC, June 16, 2022
5. The Wall Street Journal, June 15, 2022
6. The Wall Street Journal, June 15, 2022
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.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. 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. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
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.
Please consult your financial professional for additional information.
This 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 is not affiliated with the named representative, financial professional, Registered Investment Advisor, Broker-Dealer, nor state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. Copyright 2022 FMG Suite.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only. Advisory Services offered through My Legacy Advisors, LLC dba Eagle Wealth Management, a registered investment advisor.