HWM Market Recap - June 2022
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It has often been said that history does not repeat itself; it merely rhymes. The stock and bond markets are going down. They have gone down before. The current bear market has both similarities and differences to those prior. More accurately, it is the mix of circumstances similar to some and different from others. For example, while some sectors are declining (such as Technologies), others are advancing (such as Energy). Just as bull markets become bear markets when fundamentals change, so too bears become bulls when the decline runs its course. This time, one obvious difference not seen in forty years is high inflation. In the meantime, each of us needs to build an investment portfolio that matches our particular circumstances in light of the larger financial and economic world in which we live. Most importantly, we keep our investments appropriate, recognizing the tradeoff between risk and reward.
Some bull markets are bigger or smaller than others, the same with bears. We will only know how far this one goes in the fullness of time. This is because the future is still to be determined. For example, how far will interest rates rise? Will there be a recession in the near future? What is to become of the war in Europe? When will gas (and diesel) prices decline?
In the meantime, while we cannot control what happens in the world around us, as stated above, we can work to make sure that our investments are tailored to our individual needs and personal preferences.
All signs indicate that we are still in a bear market as concerns over rising inflation and interest rates and the possibility of a recession continue to rattle markets. Meanwhile, some of the strongest rallies can happen in a bear market, as we saw in March and May.
The Federal Reserve is raising interest rates which will continue for some time. According to the minutes from its last policy meeting, the Federal Reserve policymakers expressed the need for hikes to be announced at the next several meetings. Therefore, it appears the Fed will continue to raise rates as long as inflation remains elevated.
The CEO Confidence Survey, which gauges economic outlook as viewed by 100 chief executive officers from various U.S. industries, continues to fall, with more than half of the CEOs expecting a recession ahead. Additionally, nearly 60% of those surveyed expect inflation will come down; it is unknown how long this will take.
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Monthly Changes In Major Indices
S&P 500: -0.43%
Dow Jones Industrial Average: -0.02%
Nasdaq Composite: -2.75%
Monthly Performance By Sector
Energy (XLE) +18.26%
Utilities (XLU) +3.74%
Communication Services (XLC) +2.45%
Materials (XLB) +2.27%
Health Care (XLV) +1.60%
Financials (XLF) +0.79%
Technology (XLK) -0.30%
Industrials (XLI) -1.21%
Consumer Staples (XLP) -4.64%
Real Estate (XLRE) -6.78%
Consumer Discretionary (XLY) -8.56%
Monthly Top 5 Performers
Energy (XLE) +18.26%
Energy continues to dominate the equity markets; it’s up double digits this month (up 60.98% since the beginning of the year). The biggest gainers within the sector this month included: Devon Energy Corp (+30.53%), Occidental Petroleum Corp (+27.47%), Marathon Oil Corp (+26.35%), Coterra Energy Inc (+25.66%), and Pioneer Natural Resources Co (+24.07%).
Utilities (XLU) +3.74%
Utilities closed the month with the second-highest percent increase, with nice gains from The AES Corp (+7.10%), Consolidated Edison Inc (+7.05%), NextEra Energy Inc (+6.26%), Alliant Energy Corp (+5.60%), and WEC Energy Group Inc (+5.10%).
Communication Services (XLC) +2.45%
With the third-highest percent increase this month, Communication Services continue to be an improving sector. The leaders within the sector include Lumen Technologies (+22.71%), Paramount Global (+17.21%), Electronic Arts Inc (+14.28%), AT&T Inc (+11.64%), and Meta Platforms Inc (+11.53%). Paramount Global’s (PARA) reprise of Top Gun: Maverick took the top spot at the weekend box office during the Memorial Day weekend with a record-breaking $156 million in sales. The previous record-holder for Memorial Day weekend was Pirates of the Caribbean: At World’s End, which opened to $153 million in sales in 2007.
Materials (XLB) +2.27%
Materials had a positive month with leaders including Albermarle Corp (+40.94%), Celanese Corp (+13.66%), Amcor PLC (+11.76%), LyondellBasell Industries NV (+11.17%), and Corteva Inc (+10.23%).
Health Care (XLV) +1.60%
Health Care also finished the month of June positive, with its biggest gainers being Eli Lilly and Co (+13.85%), Merck & Co Inc (+10.27%), Thermo Fisher Scientific Inc (+9.97%), Pfizer Inc (+9.24%), and Cigna Corp (+8.63%).
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New single-family home and existing home sales sank in April to their lowest level since early in the COVID-19 pandemic. The National Association of Realtors (NAR) noted that the median price for an existing home reached a record $391,200, 14.8% higher than a year ago. April was also the 122nd consecutive month of year-over-year increases, the longest streak of gains on record. Along with rising prices, mortgage rates have doubled over the past year.
The Consumer Price Index (CPI) showed that the annual inflation rate is slowing for the first time since August. The annual rate came in at 8.3%, down from 8.5% in March.
In a recent opinion piece in the Wall Street Journal penned by President Joe Biden, he states, “I won’t meddle with the Fed, but I will tackle high prices while guiding the economy’s transition to stable and steady growth.” Some argue the piece is a warning sign of the coming recession and is an attempt by the Biden Administration to get ahead of the curve.
The pain at the pumps continues as the average price per gallon of gas reached $4.62 in May, up 44 cents from the prior month and up $1.58 per gallon from last year. Also, for the first time, the average price of a gallon of gas is over $4 in all 50 states, according to AAA.
Despite significant layoffs at some large companies, April’s jobs gains proved better than expected. U.S. employers added 428,000 jobs that month, according to the Department of Labor’s latest nonfarm payrolls report. Industries that saw the most significant gains included leisure and hospitality (+78,000), manufacturing (+55,000), and transportation and warehousing (+52,000).
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