Last week’s Market Recap:
- The S&P 500 was down -2.18% for the week. Year-to-date the index is down -19.11%.
- NASDAQ closed the week up -4.12% and is down -28.60% YTD.
- 10-Year Treasury Rate increased, ending the week at 2.88% from 3.13% the prior week.
- Fed Funds Target rate is 1.75%
The week ahead, 7/5:
- JOLTS (Job Openings and Labor Turnover Survey)
- Unemployment Rate
- China PMI and Inflation Data
Both equities and fixed income delivered negative returns through the end of the second quarter. Tighter monetary policy from the Fed along with inflation, supply chain disruptions, and the conflict in Ukraine hurt investors across both asset classes. In contrast, commodities finished 1H22 up 18.4% due to the surge in food and energy prices; however, commodities are down -13.87% in the past month (see chart below).
The first half of 2022 drawdown in stocks wasn’t an anomaly. The first half of 2022 drawdown in bonds wasn’t an anomaly. The anomaly is that they suffered significant drawdowns at the exact same time! As we enter the back half of 2022, for bond investors, the move higher in Treasury rates and the widening in credit spreads has led to some of the most attractive yield levels in recent history. For equity investors, the S&P 500 forward P/E ratio is now below its long-term average, potentially representing an attractive buying opportunity. Risk-on, risk-off dynamics should eventually return to the markets. Historically, investors are rewarded for staying invested before, during, and after a recession (See chart below).
As you can see in the following charts: 1) The recent fall in commodity prices will eventually work its way into CPI and PCE inflation statistics. 2) Stock performance as the end of, and following recessions.
CRA Investment Committee
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