May 13, 2022

Weekly Market Commentary May 9th to May 13th 2022

Investors struggled throughout the week, wondering whether the Federal Reserve will be able to slow the pace of rapid inflation and engineer a soft landing. There is much to unwind from the unprecedented monetary easing policies set into place during the pandemic.

The Consumer Price Index (CPI) inflation report showed mixed results. The headline year-over-year rate was 8.3%, which is down slightly from the prior month of 8.5%, but above the estimate of 8.1% and still near a 40-year high. However, the month-over-month rate increased 0.3%, again above the estimate of 0.2% but well-below the prior month’s increase of 1.2%. “Core” ex-food and energy disappointed as well, increasing 0.6% and above both the estimate of 0.4% and the prior month’s increase of 0.3%. Overall, the surprise to the upside did little to change traders’ view of the Fed’s expected path.

More details regarding the negative impact of inflation came from the Labor Department who reported that Real (inflation adjusted) hourly earnings declined by 2.6% year-over-year, meaning that despite wages rising at the fastest pace in years, employees are making less when adjusted for inflation and pushing overall inflation higher.

The Producer Price Index (PPI) data was released on Thursday. Similar to the CPI report, the results were mixed with several year-over-year figures coming in higher than estimates in addition to upward revisions to the prior month, while month-over-month figures were at or below estimates and the prior month. ‘Core” PPI month-over-month was 0.4%, below the estimate of 0.7% and the prior months revision of 1.2%. Year-over-year “Core” PPI came in at 8.8%, still very-elevated but below the prior month’s reading of 9.6%.

Friday delivered consumer sentiment data with the University of Michigan’s preliminary report for May, and it showed a greater than expected decline. The index declined to 59.1, from 65.2 in April and well-below the estimate of 64.0 and is at the lowest level since August 2011.

The S&P 500 declined to start the week, breaking the 4,000 level for the first time in over a year. Elevated levels of volatility continued with the VIX averaging 34.5 throughout the week. However, sentiment changed on Friday with all three major indexes posting strong gains, with the S&P 500 up 2.39%, closing at 4,023 for the week.

Volatility in interest rates continued with the yield on the 10-Year U.S. Treasury starting at 3.1%, declined to 2.85%, and closing the week at 2.94%.

Next week offers a full slate of economic releases include several speeches from Federal Reserve Governors, Retail Sales, Manufacturing, and Home Sales.

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