Friday, May 20, 2022
Pre-market futures are up at this hour, but the damage for the week has already been done. Barring a superlative blowout to the upside — like if China suddenly got its supply back online or the war in Ukraine somehow ends — we’re looking at the eighth-straight down week for the Dow, seven for the S&P 500 and Nasdaq. The Dow is currently +220 points, the S&P +35 and the Nasdaq +150 points.
Just this week, both the Dow and the S&P have dropped -3%, and that’s the relative good news; the Nasdaq is down -3.5%. This adds to the market misery that so far has defined the year 2022: the Dow is -14% year to date, the S&P -18% and the Nasdaq -27%. In other words, the indices have all seen better days.
And tempting as it would be to call a bottom here, these markets have been surprising to the downside too often to make a claim so seemingly foolhardy. What we do know — from economic data out recently — is that we’re starting to see inventories beginning to build, which should alleviate supply strain to a certain extent, which could lead to lower price points, which would counter inflation metrics.
We also know the Fed is planning to raise interest rates by 50 basis points at both its June and July meetings, bringing the Fed funds rate to 1.75-2.00% by Labor Day, as well as begin the draw-down of $9 trillion on the Fed’s balance sheet by $30 billion per month through the summer, then $60 billion from that point on. This means the era of cheap money is most certainly over, and market participants have been pricing in this fact (quite painfully) of late.
The end of Q1 earnings season is just about here, though next week will still bring us some key items on the economic front: New Home Sales, Durable Goods, a revision to Q1 GDP, jobless claims, PCE inflation and minutes to the most recent Fed meeting from the first week of May. If what the market hates more than anything is uncertainty, the cure is at hand: we gather more and more certainty as the days and weeks roll along.
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