Stock Market Rover 05.17.2022

Peyton Chambers

May 17, 2022

Every week I’ll provide updates on the latest trends in the stock market. Follow along to stay up to date!

A Turbulent Week

Bears continued dominating the major U.S. stock indexes for most of last week, while investors flocked to U.S. government bonds in search of a safe haven yield.

DJIA, Nasdaq, MSCI_EAFE, S&P 500 Weekly performance

Markets continue to digest the Federal Reserve’s aggressive monetary policy-tightening plans while speculating on the speed and intensity of future rate hikes. Major U.S. stock indexes closed higher on Friday but not high enough to recuperate the previous four days’ losses, marking six consecutive down weeks for the S&P 500. Summarizing the major U.S. equity indices last week, we saw the S&P 500 shed 2.41%, the Nasdaq 100 decline by 2.41%, and the Dow Jones Industrial Average dropped by 2.14%.

Inflation Persists

April’s Consumer Price Index (CPI) data showed a mixed inflation picture, still running near 40-year highs. The data showed an 8.3% rise compared to one year ago–higher than the 8.1% estimate but down from the March reading of 8.5%. Core CPI, which omits food and energy from the metric, rose by 0.6%; versus the 0.4% forecasted. While inflation continues to run hot, many investors are looking for signs of peak inflation, and the April CPI data is encouraging to a certain degree.

Government Bond Demand

10-Year Treasury Yield Line Chart

Last week, demand for U.S. government bonds sent the recently soaring U.S. 10-year note yield lower. (Bonds and their yields have an inverse relationship.) 10-year note yields ended the week toward the low end of the weekly range. They closed at 2.934% last Friday, down from their 3.122% weekly close the previous week. It will be interesting to see how bond yields behave when major equity indexes notch a week in the green.

Consumer Sentiment Sours

University of Michigan 20 Year Consumer sentiment

Preliminary University of Michigan consumer sentiment data declined more than expected, falling to 59.1 versus the previous reading of 65.2. This figure was well below Bloomberg’s consensus estimate of 64.0. The data marks the softest reading in consumer sentiment since 2011, as consumers adapt to higher costs of necessities. Approximately 500 consumers are polled for UoM’sconsumer sentiment reading. Nearly half of the survey’s respondents indicated that they do not expect their income to keep up with the pace of inflation over the next year.

This Week

The broad narrative remains the same: inflation and higher interest rates are still in the spotlight. Retail sales data is on the radar for Tuesday, promising to offer further insight into the health of the consumer. Consensus estimates are for an increase of 1.1% month over month. Later on Tuesday, Jerome Powell will be speaking at the Wall Street Journal’s Future of Everything Festival in NYC. Audience questions are expected. We will get housing starts data on the real estate front on Wednesday and existing home sales data on Thursday. Overall, it’s a quiet week for economic data, and perhaps that is just what this market needs to regain some footing, following the strong showing from major U.S. stock indexes last Friday.