Market mayhem continued for the first half of May as large daily swings – both positive and negative -- continued. Here’s one example:
On May 4th, the Federal Reserve (Fed) announced a much-anticipated increase to interest rates, in the amount of 0.5%. This was the first time the Fed has increased rates above 0.25% since 2000. While subsequent rate increases are likely, the markets have feared increase amounts of 0.75% or greater. Fed chairman, Jerome Powell, eased those fears, “A 75 basis point (0.75%) increase is not something the committee is actively considering…”
Markets celebrated this moderated approach and posted the single largest daily gains since 2020. The Dow Jones Industrial Average (Dow) rose 932 points (2.81%), the S&P 500 was up 125 points (2.99%) and the NASDAQ Composite Index (NASDAQ) was up 401 points (3.19%).
The very next day investors reassessed the comments by the Fed and pessimism returned. The Dow ended the day with a loss of 1,063 (3.12%), the S&P 500 fell 153 (3.56%) and the NASDAQ dropped 647 (4.99%). This was the single largest decline of 2022.
As we’ve mentioned before, when you see the market making such nonsensical moves, oftentimes the best strategy is to refuse to feed the frenzy.
Among positive economic news (that likely missed media reports) was signs that inflation may be beginning to wane: April’s Consumer Price Index fell to 8.3% from the previous month’s 8.5%. No doubt consumers are still feeling the pinch at grocery stores and gas stations, but signs do point to a promising trend.
On the jobs front, April posted 428,000 new jobs and unemployment stayed steady at 3.6%. These strong gains in jobs reflect a robust labor market.
First-quarter earnings reports are wrapping up and the results are surprisingly strong. 461 of the S&P 500 companies have reported, with 74% of the companies having beaten earnings expectations and 66% beating revenue expectations.1
Last Wednesday the Treasury Department announced a record monthly budget surplus for April in the amount of $308 billion. The market mostly ignored this report but this surplus suggests we may see a significant decline in the budget deficit for the year as a whole.
Last Thursday the Senate voted to approve a second 4-year term for Jerome Powell as chair of the Fed. We view consistent leadership of the Fed during this challenging time as positive.
Wrapping up the last two weeks, market returns for the first half of May were uniformly down. The Dow fell 780 points (2.37%), the S&P 500 dropped by 108 points (2.61%) and the NASDAQ lost 530 points (4.29%).
1 J.P. Morgan Asset Management. S&P 500 earnings reports. "Economic Update." 5/16/2022. Dr. David Kelly