A Mixed Month for Markets; An Uncertain Path Forward
All things considered, May was a mixed month for stocks. Markets remained relatively flat while shouldering elevated volatility and year-to-date lows. Equities rallied at the start of May, rising during what seemed to be a technical relief rally following the worst April price action in 21 years. The initial rally proved to be short lived, though, as inflation pressure and stagflation concerns dragged down stocks to new Year-to-Date (YTD) lows. Fortunately, stocks bounced off the lows in the last week of May just enough to end the month in positive territory snapping a 7-week losing streak for the S&P 500.
May ended with the S&P 500 Total Return Index up .18%. Small cap stocks, as represented by the Russell 2000 Total Return Index also ended the month slightly positive gaining .15%. While the NASDAQ Composite Total Return Index did not fair as well falling 1.93% in May. Bonds, as denoted by the Bloomberg Barclays Capital U.S. Aggregate Bond Index, gained .64% for the month as the 10-year yield ended slightly lower after rallying to its highest point since late 2018.
Now, almost midway through 2022, the S&P 500 has retracted 12.76% with the Bloomberg U.S. Aggregate Total Return Value Unhedged Index falling 8.92% through May. The 60/40 portfolio which is known for its resiliency in turbulent market cycles had its worst start to a year on record through the first five months of the year (Jan-May).* As you can see from the data populated below, we have listed the 10 worst performance periods going back 33 years to the S&P 500 Total Return Index inception. In 2022, the return for the 60/40 portfolio using the S&P 500 Total Return Index and the Bloomberg U.S. Aggregate Total Return Value Unhedged Index has fallen 11.22% so far in 2022. It is also worth observing that of the previous nine worse starts for the 60/40 portfolio, only about half of the time the full year return improved compared to that year’s respective Jan-May return.
Grid Source: Stadion
Data Source: Bloomberg Terminal
A Look Ahead
Looking ahead toward the rest of the year, sentiment will likely remain volatile and sensitive to incoming economic data and future inflation expectations. Stock markets don’t like uncertainty, and the concern that the Federal Reserve could overshoot this quantitative tightening cycle, or not go far enough, will likely be in question in the near to intermediate term.
Brian Rosso, CFA
Portfolio Management Analyst
*Inception of the S&P 500 Total Return Index Jan 04, 1998.
The S&P 500® Total Return Index is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index. As a total return index, it assumes reinvestment of all cash distributions.
The Russell 2000 Total Return Index is a capitalization-weighted index made up of the smallest 2,000 U.S. common stocks as measured by market capitalization included in the Russell 3000 Index, which consists of the largest 3,000 U.S. common stocks based on market capitalization.
The NASDAQ Composite Total Return Index is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
Bloomberg U.S. Aggregate Total Return Value Unhedged Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
Quantitative tightening is a contractionary monetary policy tool applied by central banks to decrease the amount of liquidity or money supply in the economy.
There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical measurements are one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity.
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