Market Update for May 17, 2022

The S&P 500 continues to be very volatile, and mostly to the downside.  We are currently 15-16% down on the year-to-date but almost 5% above the intraday lows established the afternoon of Thursday May 12th.  Moreover, I have written a number of times about the S&P 500 wanting to hold the 4,070 level, and we have almost retained that level again- we are at 4,060 as I write this (11:25 AM 5/17/2022), with the market rebuffed at the open hitting 4,070 exactly.  What was a “floor” becomes a bit of a “ceiling” if you break down below that key figure, and in the very short-run I believe that’s what we are seeing.  

Let’s take a longer, broader view though, as I do not day-trade and am not remotely advising anyone to do so.  We are in what is known as a “correction” which is broadly defined as 10%-19.99% retracement from the previous high.  20.00%+ declines are considered “bear markets,” although the terminology is not as meaningful to me as it seems to be to financial journalists.  We had a 19.7% decline intraday as of last week, so call it what you will, the stock market has had a terrible first few months of 2022.  The stock market tries to get ahead of the news, so on aggregate the stock market is predicting at least slower growth and quite possibly a recession sometime in the late-2022 to mid-2023 time period.  A recession is commonly defined as two or more successive negative quarters for GDP growth.  This strikes me as plausible, but please note that 1) the stock market is not always “right,” meaning economic expansion could confound negative expectations, 2) whether or not we have a recession doesn’t matter as much as the depth and duration of said recession, and 3) the stock market will not necessarily do poorly DURING the would-be recession, as it would again be looking 6-12 months ahead into presumed economic expansion.  Today the stock market is predicting the ashes, by the time the ashes show themselves (if they do), the stock market may be turning to the Phoenix’s ascent.

Clearly value stocks have won the day, so far this year, but unfortunately that does not mean that they are positive - they have just lost less than the growth side of the coin.  Nearly every trade I have made for clients in the past 6 months has been moving monies from growth/tech-laden funds over to value-leaning ones, in one fashion or another.  Bond yields have stabilized over the past few weeks, so whereas stocks and bonds both had a negative April, bonds are doing fine in May despite stocks’ continued declines.  I am not a long-term believer in the energy sector, although that is by far the best performing sector year-to-date.  Fossil fuels fly in the face of where the political ball seems to be bouncing, and besides that point, I have no expertise or extended-knowledge in the area of energy.  We do have energy stocks within our value-funds, and today I am happy for that, but again, I do not anticipate buying energy-only or energy-focused positions for clients.

In closing, here are some thoughts from another financial professional written in late February about the historical context for market corrections.  I think there are some cogent points made here, but please note I am not affiliated with this individual nor his firm