Mr. May’s Wild Ride 🚘

Market Musings 6/3/2022

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

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S&P 500’s wild ride in May just to end essentially flat－so much for “sell in May and go away”.

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You wouldn’t know it from the finish, but May was a rollercoaster of investor sentiment. Extending April’s market panic, we initially tumbled -6% and approached bear market territory twice before cautious Fed optimism drove a strong market recovery. The S&P 500 went for a wild ride in May just to end essentially flat (technically up 0.01% 🤣).

Fresh off April’s #RecessionWatch market panic, May kicked off with Fed hiking rates 50 bps (most in over 20 years) and signaled expectations to continue aggressive #RisingYields near-term. New April CPI inflation data released the following week showing first decline in eight months, but remained elevated. With slowing #InflationFears growth unlikely to deter Fed rate hikes, S&P 500 continued to decline though bounced off the edge of bear market territory.

The S&P 500 would flirt with bear market territory again the following week. Walmart and Target earnings sounded the alarm warning negative impact from higher markdowns, freight costs, supply disruptions and labor costs. Perfect storm of #RecessionWatch fears fueled market panic again. The Consumer 🛍 sector lead markets close to bear territory yet again as investors questioned Fed’s ability for an economic soft landing.

However, market sentiment sharply reversed at the end of May. Newfound bullish sentiment was driven less by stronger expectations of economic resilience, but by growing expectations for Fed to reassess #RisingYields plan if economic conditions deteriorates significantly. While 50 bps rate hikes likely penciled-in for June and July, investors optimistically looking towards Fed potentially easing aggressive action if #InflationFears growth decelerates, #HelpWanted labor market slows, and #SupplyScare issues abates. Perhaps looking to call a bottom, S&P 500 strongly rallied +6% to close May essentially flat.

The summer months likely continue market debate over Fed action in September. Look for even minor data points signaling one direction or the other to cause heavy market swings. Thus far all we know is the macro uncertainty is well… uncertain. Even today, the S&P 500 fell -1.6% on stronger than expected job numbers that investors expected to likely to not change Fed #RisingYields plans. However, at the same time, we’re hearing conflicting data points of announced layoffs and rumors of more to come. We expect high volatility to continue as investors focus disproportionally on #RecessionWatch signals in the seasonally slower summer months.