Snapping the Losing Streak

Telemus Weekly Market Review May 23rd - May 27th, 2022

Markets got a much needed reprieve this past week with share prices experiencing sharp gains as the S&P 500 appreciated by 6.6%. The shockingly strong return snapped a stretch of seven straight weeks of losses for the index. With one trading day remaining in May, the S&P 500 has now returned to positive territory for the month.

Optimism began early in the week after Atlanta Fed President Raphael Bostic indicated it was possible the Fed may need to pause on interest rate hikes in September in order to digest the impact of planned federal fund rate increases over the summer. This dovish stance drove yields lower on Treasury bonds 2-years and longer.

Returns were uniformly high across the U.S. equity market. Large company, small company, growth, and value styles all had returns of 6%+ during the week. Returns outside of the U.S. were not as strong given the rally was fueled by views that the Fed may not be as hawkish as some fear. The pace and magnitude of future Fed rate hikes beyond September remains uncertain, even for voting members of the Federal Open Market Committee. As such, one should not overly react to one statement, however, given the negative sentiment for the past seven weeks, a bit of a dead cat bounce in share prices is reasonable.

A slew of company earnings demonstrated the rising tide of stimulus fueled economic rebound is no longer lifting all boats. In the week prior, both Walmart and Target signaled a potential slowing in retail conditions and challenging margins. This past week retailers including Nordstrom, Dollar Tree and Williams Sonoma demonstrated that spending and business conditions remain robust for their businesses.

In addition to the rally among stocks, bonds also had a good week. The riskier corporate bond sector benefited, as yields on both investment grade and high yield corporate bonds compressed. The bond market barometer, the Bloomberg Barclay’s U.S. Aggregate index climbed +0.8% on the week.

Real assets had a strong week as commodities continued to climb higher with the Bloomberg Commodities index gaining +2.6%. Oil prices were up over 4%, with natural gas gaining over 8%. Lower inventory levels for natural gas drove price gains.

It wasn’t all roses on the week. New data out on housing activity indicated that new home sales fell nearly -17% over the past month as higher mortgage rates are beginning to stall housing activity. Moreover, pending home sales were down -3.9% over the past month, per the National Association of Realtors, and have fallen over -11% from year ago levels. In addition, several regional manufacturing surveys pointed to softening industrial conditions.

This week’s rally was appreciated after what has been nearly two months of steady weekly declines. However, we continue to expect markets to be volatile and don’t put much credit in market movements based speculation around what central banks may or may not do several months out. As we enter June, we expect a slate of economic reports ahead of the mid-month Federal Reserve meeting. We continue to believe the Fed will be on autopilot throughout the summer, with telegraphed half percent rate increases on the docket for the June and July meetings. Investors should not overreact to any one data point in the coming months, with the Fed likely to focus on the full picture rather than any one particular piece.

All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Telemus Capital cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. Current and future portfolio holdings are subject to risk. Risks may include interest-rate risk, market risk, inflation risk, deflation risk, currency risk, reinvestment risk, business risk, liquidity risk, financial risk, and cybersecurity risk. These risks are more fully described in Telemus Capital's Firm Brochure (Part 2A of Form ADV), which is available upon request. Telemus Capital does not guarantee the results of any investments. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, and may lose value.

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization. The Bloomberg Barclay’s US Aggregate Bond index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The Bloomberg Commodity Index (BCOM) is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification. An index is not a security in which an investment can be made, as they are unmanaged vehicles that serve as market indicators only and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Advisory services are only offered to clients or prospective clients where Telemus and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Telemus unless a client service agreement is in place. All composite data and corresponding calculations are available upon request.