May 27, 2022

Weekly Market Commentary May 23rd to May 27th 2022

Overall, economic data disappointed this week despite equity markets breaking their 7-week losing streak. Year-over-year PCE (Personal Consumption Expenditures) rose 6.3%, slightly higher than expected but lower than the 6.6% annual increase that consumers experienced in March, the fastest pace since 1982. The most encouraging aspect of the report was the sharp decline in the month-over-month number which came in at 0.2%, down from March’s 0.9% pace. Although a positive sign that inflation is slowing, the figures won’t deter the Federal Reserve from their tightening path.

The Federal Reserve released its FOMC minutes on Wednesday confirming their hawkish stance. The participants stated that a more restrictive policy will be appropriate moving forward as the Fed looks to tame inflation without causing a recession.

Sales of newly built homes sank to the slowest rate since the start of the COVID pandemic. New Home Sales fell nearly -17% to 591K, much lower than the 748K that economists expected. During the pandemic, demand outpaced supply. However, in the month of April inventories jumped as affordability weighed on new home purchases. Supply is now 1.5x higher than the six-month average.

The second reading of first quarter GDP was little changed at -1.5% compared to the previous estimate of -1.4%. Downward revisions for both private inventory and residential investment offset an upward change in consumer spending. Consumers remained undaunted by inflation. Consumer spending rose 0.9%, which was better than expected despite personal incomes only increasing 0.4% as consumers continue to dip into their savings.

Equity markets skyrocketed during the week in a snapback rally. The S&P 500 was up 6.5%, finishing at 4,158 while the Dow and Nasdaq mirrored the index’s performance finishing at 33,214 and 12,131 respectively. Fixed income markets experienced less volatility with the 10-Year U.S. Treasury yield down only 0.04% to 2.74%.

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