Mixed Market News

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May was a hard month to digest. We saw stocks drop over 9% from peak to bottom in two-weeks, with a sudden rebound in the last week that nearly wiped out all of May’s losses. Unfortunately, many predict this roller-coaster market will remain through the latter half of 2022 as we juggle inflation, continued supply chain disruptions, COVID resurges, and the unpredictable geopolitical issues related to Russia, North Korea, and China. Our current political climate is also attention grabbing, but may have less significant impact on the stock market, especially if control of the House and Senate are split, impeding the passage of meaningful tax code changes. However, split control of the House and Senate is typically good news for the stock market. The market hates unpredictability, and in our current climate, there is very little bipartisan change enacted.

Going back to the stock market, May brought about serious discussions about an “impending recession.” The verdict is out as to whether the Fed’s policies will make a recession imminent.  The Fed is tightening monetary supply by buying less bonds in the open market and ending pandemic related aid. The Fed is also playing catch-up to curb inflation, mistakenly written off as transitory in 2021, by aggressively raising interest rates.  These actions by the Fed, tapering bonds and raising interest rates, have independently resulted in a negative stock market when enacted in the last decade. It’s understandable why the investing community and retirees are worried.

By definition, a recession is two consecutive quarters of decline of at least 1.5% in total economic activity, as measured by Gross Domestic Product (GDP), in combination with unemployment of 6% or more. To put this in context, the U.S. has recorded a recession 33 times since the government began this economic measurement in 1854.[i] Therefore, recessions are not uncommon or unrecoverable; just very unpleasant.

As of June 2022, we’ve checked the box on economic decline for one of the two quarters required to meet the recession definition. However, we are far from reaching the unemployment measurement. In fact, during the first week of June, unemployment was running at about 3.6%, and there was an increase in the labor force participation rate, reflecting an underlying strength in our economy.[ii] Additionally, inflation appears to be peaking, which is great news for the economy. After a year of nearly consistent increasing inflation figures, inflation appears to have peaked at 8.5% in March 2022, and posted a slight decrease to 8.3% in April. Further, consumers and businesses in the U.S. appear to be spending and investing. We see shifts as consumers navigate COVID reopening and revenues move from at-home stocks to reopening or recreational travel stocks. Further, while many employees are returning to work in a hybrid environment, other employees are continuing to work remotely if necessary, meaning productivity will be uninterrupted wherever it occurs, further increasing economic confidence.

Looking globally, the U.S. is not alone in first quarter angst. Overall, the GDP of the world’s developed countries rose by just over 0.1% in Q1, with Italy, Japan, and France all experiencing moderate declines.[iii] Much of this was attributed to temporary factors like the Omicron resurgence and Russia invading Ukraine, but it is important to keep in mind that we considered COVID supply chain disruptions “temporary” back in 2020. Therefore, the long-term impacts on international developed countries are truly unknown, just as the future aggressions of COVID and Putin are only educated guesses.

The U.S. stock market entered 2022 unprepared for the Fed’s tightening cycle, but painfully, the market has adjusted for and priced in such information now. To date, the Fed has raised interest rates three quarter-points this year.  It is anticipated the Fed will raise interest rates 50 basis points (or two quarter-point increases) both in the June and July meetings, back to back. At the beginning of 2022, the Fed said they would raise interest rates 8-quarter points, so if they hold true, there may be one more interest rate increase in September or in the latter part of 2022. However, many feel the Fed will be data dependent, meaning they will recalibrate after each month’s inflation and economic readings post. That being said, some analysts feel we may have reached or may be near the bottom of the market, as the June, July and potentially September interest rate increases are priced into our current market. We all hope the worst of the market decline is behind us.

As the market continues to find its right path through 2022, one of the best strategies to navigate market volatility and uncertainty is to invest in a diversified portfolio. Many investors who stayed in the market may have experienced growth with their investments or risky stocks after the pandemic low in March 2020. However, the recent decline reminded us that a diversified portfolio with disciplined rebalancing can be the dependable tortoise of the long-term investing race, so don’t be sidetracked by that flashy hare. Reach out to a Certified Financial Planner ™ to develop a well-planned road map to financial success that incorporates boom and bust markets as a part of good planning.

[i] Bob Veres Insider Information

[ii] https://resources.wisdomtree.com/weekly-siegel-commentary/

[iii] Bob Veres Insider Information

The commentary on this website reflects the personal opinions, viewpoints and analyses of Kondo Wealth Advisors, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc. or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.