By: Jeff Anderson, CFA
|Close||Weekly return||YTD return|
|US Treasury 10yr Yield||2.785%||-13.3%||127.1%|
Source: Wall St. Journal
Market Wrap – “It’s Like Déjà vu All Over Again”(1):
Eight weeks and counting. That’s how many consecutive negative return weeks the Dow Jones Industrial Average has posted. That hasn’t happened since 1923 (2). It’s been a constant grind lower for equity markets. Walmart and Target both reported disappointing earnings this week. Consumer buying patterns changed and both retailers were caught with the wrong inventory. Add on material increases in fuel costs for the year, and the outlook didn’t give investors any comfort, sending their share prices down approximately 20% and 28% respectively. Nothing seems to be going right for many companies. On a positive note, bonds started to behave a little better. The US Aggregate Bond ETF (“AGG”) has been roughly flat for the past month. That’s a far better result than the previous three and a half months, where the bond ETF had lost nearly 10% (3).
The recession debate keeps raging. First Trust’s Brian Wesbury thinks a recession is unlikely until late 2023 or 2024, but he did bring down his price target for the S&P 500 to around 4,100 given the dramatic rise in yield on the US 10 Year Treasury Note (Late last year, his price target for the S&P 500 was 5,250 for 2022). Economists are pricing in a 30% chance of a recession this year. Who knows? We already had a negative GDP quarter in Q1. We might already be in one. Whenever a recession happens, and they do…. it’s part of the economic cycle, and the market will have already priced it in. Consumer Sentiment is also at decade lows, reaching the lows set back in 2009. It is a 180 degree from just prior to the onset of the pandemic. But the economy was actually decelerating at that point. Consumer Sentiment tends to be higher during economic expansionary periods and low during recessionary periods.
Domestic equity markets are now officially in a bear market and it has us feeling glum. Nobody likes to see their nest egg shrink, but markets don’t go up in a straight line. As markets continue to trend lower, the good news is that equities are getting cheaper. The cheaper they get, the higher the future expected returns. Market corrections offer other opportunities as well. It can be a good time to consider Roth Conversions, or tax loss harvesting. These are things you should discuss with your advisor.
Remember, investing is a marathon not a sprint.
- – Yogi Berra quote
- – CNBC
- – YCharts
Changes in Spending:
The New York Fed has some interesting data on its site. One that caught our attention, was the change in household spending on essential and non-essential items over the next twelve months. You can see from the chart below, that changes in spending on essential items has moved up materially. We all know that prices are rising and from the NY Fed’s survey, it looks like we think price increases won’t stop this year.