Global equity markets finished lower for the week. In the U.S., the S&P 500 Index closed the week at a level of 4,123, representing a decline of 0.18%, while the Russell Midcap Index moved 1.60% lower last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned -1.29% over the week. International equity performance were lower as developed, and emerging markets returned -2.78% and -4.13%, respectively. Finally, the 10-year U.S. Treasury yield moved higher, closing the week at 3.13%.
0ver the past week, there have been numerous highly anticipated economic events that have occurred. These events included the Federal Open Market Committee (FOMC) May meeting, the April Unemployment report, and the 1st Quarter Productivity and Costs Report from the U.S. Bureau of Labor Statistics. Throughout the remainder of this update, we will discuss both the expected and unexpected outcomes of these events.
First and foremost was the FOMC’s May meeting and Chairman Powell’s subsequent press conference that took place this past Wednesday. As alluded to earlier, the anticipation of this meeting and the expected increase in the Fed Funds rate was monumental. Much of the market commentary over the last seven weeks (since the March meeting) centered on the Fed’s next rate hike. The market consensus anticipated a 50-basis point (0.50%) hike, but the vocal minority of market pundits were looking for an even larger increase of either 75 or 100 basis points. The media’s coverage of this more aggressive viewpoint made the highly expected increase of 50-basis points seem like somewhat a surprise.
During the post-FOMC meeting press conference, Fed Chair Powell responded to a question stating that currently, the Committee is not considering future rate increases of greater than 50-basis points, which ignited a short-lived rally in equities last Wednesday afternoon before the stock market moved dramatically downward for the balance of last week. Additionally, by the end of his remarks, Chair Powell communicated that 50-basis point moves would likely happen at the next two FOMC meetings.
The remaining two economic events to be discussed both had unexpected outcomes, one positive and one negative. On Thursday, the U.S. Bureau of Labor Statistics released its report on Productivity and Costs, First Quarter 2022 (Preliminary). The report showed that nonfarm productivity, which measures hourly output per worker, fell at a 7.5% annualized rate during the 1st Quarter. The report also showed an increase in unit labor costs of 11.6% for the Quarter. Both results exceeded Wall Street estimates for the Quarter. Labor productivity and costs are important factors for the state of the overall inflation in the U.S. It is somewhat important to note that this was a preliminary report and will potentially be revised in the upcoming weeks.
Lastly, the April Employment report released on Friday showed better than consensus outcomes as Nonfarm payrolls grew by 428,000 for the month, 7% better than the Dow Jones estimate. Average hourly earnings increased by 0.3% for the month, slightly below the 0.4% estimate. We believe that a strong labor market will be crucial in helping the Federal Reserve guide the economy to a soft landing and avoiding a recession this calendar year.
As we digest all of the above results, we will end with one final statement from Chairman Powell’s remarks from last week’s press conference; “We need to do everything we can to restore stable prices as quickly and effectively as we can. We think we have a good chance to do it without a significant increase in unemployment or a really sharp slowdown.”
If you are concerned with all of the recent market volatility and uncertainty, now may be the optimal time to review your portfolio with a financial professional to help ensure that your investments are sufficiently diversified and allocated towards the appropriate asset classes associated with your specific financial objectives, risk tolerance, investment horizon, and liquidity needs.
Best wishes for the week ahead!
Employment and productivity data are sourced from the U.S. Bureau of Labor Statistics. Equity Market and Fixed Income returns are from JP Morgan as of 5/6/22. Rates and Economic Calendar Data from Bloomberg as of 5/6/22. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index, U.S. Large Cap defined by the S&P 500. Sector performance is measured using the GICS methodology.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.
Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against loss.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk, especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than the original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
Investors cannot directly purchase any index.
LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.