May 2022
Financial Market Update
As May kicks off, we hope you all have fun celebrating that special mom in your life, we salute you, mothers, for all you do both seen and unseen!
Now back to what’s happening with the markets.
Interest rate headlines stole the show in April as markets continued to ponder the pace and timing of future Federal Reserve interest rate hikes. Inflation continues to persist, with the most recent Consumer Price Index (CPI) data showing an 8.5% jump[i] year-over-year in March.
For the month of April, the S&P 500 declined by 8.80%,[ii] the Nasdaq 100 shed 13.37%[iii], and the Dow Jones Industrial Average decreased by 4.91%[iv].
Earnings Season
Earnings season is in full swing, and 55% of S&P 500 companies have reported results as of the time of writing. 80% of these companies have reported actual earnings per share above estimates, according to data from Factset[v].
There were some notable earnings misses in April, however. These include a Netflix subscriber loss[vi] that translated to lower earnings, recent results from Amazon showing slower growth[vii], and the news of closing six Whole Foods[viii] stores. Streaming service competition is definitely on the rise, now Netflix has the tough job to win back subscribers or at least hope new users stop sharing their passwords.
Inflation Peak?
While March’s CPI data, released in April, showed the highest levels since 1981, several analysts are forecasting an inflation peak[ix]. Nobody knows for sure, and we are yet to see what the Fed’s future rate hikes will do to address the inflation situation.
The recently released inflation metric on April 29th, the Personal Consumption Expenditures (PCE) Price Index, reached its highest rate since January 1982[x]. The PCE Price Index is the Fed’s favorite metric to track inflation.
Bond Yields Spike
The benchmark 10-year note yield had a whopper of a month, increasing by 24.16%[xi] during April. It settled at 2.888% on the final day of trade for the month. As bond yields rise, bond prices decline, modeling an inverse relationship. As a result, this recent surge in interest rates could create opportunities for certain investors.
When bond yields rise, so do interest rates. And while interest rates have risen more sharply in 2022 versus recent years, it’s wise to keep in mind that rates have been much higher in the distant past. Have you been around long enough to remember when 30-year mortgage rates exceeded 17%[xii] in 1981 and 1982?
Nobody knows how high rates will go during this cycle, but it’s always good to have a basis for comparison.
Oil Prices Quiet in April
Crude oil prices traded in a rather narrow range during April compared to March. Perhaps you have noticed a slight pullback in gasoline prices in your market–I emphasize slight. The U.S. national average price per gallon[xiii] is $4.196 (regular) and $4.859 (premium) at the time of writing.
June crude oil settled higher by 4.40%[xiv] in April, albeit still lower than the levels that were seen in March.
The Takeaway
April featured a tone of uncertainty over the Fed’s pace and intensity of rate hikes. With further Fed rate hikes likely, time will give us a better take on the effects of rate hikes on inflation. While we are in this discovery process, price volatility is to be expected. Short-term volatility can create opportunities for long-term investors with certain risk tolerances.
With that said, if there is anything on your mind regarding your investments or overall strategy, please feel free to contact us. We are always here to help.
Disclosure: Emerald Advisors, LLC is a registered investment adviser. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
[i] Cox, J. (2022, April 12). CNBC.com. Consumer prices rose 8.5% in March, slightly hotter than expected and the highest since 1981. [Online] Available at: Consumer prices rose 8.5% in March, slightly hotter than expected and the highest since 1981 (cnbc.com).
[ii] (2022, May 1). Tradingview.com. WinningTrader, S&P 500 Index. [Online] Available at: TradingView Chart.
[iii] (2022, May 1). Tradingview.com. WinningTrader, Nasdaq 100 Index. [Online] Available at: TradingView Chart.
[iv] (2022, May 1). Tradingview.com. WinningTrader, Dow Jones Industrial Average Index. [Online] Available at: TradingView Chart.
[v] Butters, J. (2022, April 29). Insight.factset.com. S&P 500 Earnings Season Update: April 29, 2022. [Online] Available at: S&P 500 Earnings Season Update: April 29, 2022 (factset.com).
[vi] Whitten, S. (2022, April 19). CNBC.com. Netflix shares crater 25% after company reports it lost subscribers for the first time in more than 10 years. [Online] Available at: Netflix (NFLX) earnings Q1 2022 (cnbc.com).
[vii] Malik, A. (2022, April 29). Techcrunch.com. Amazon stock plunges to two-year low following first-quarter loss. [Online] Available at: Amazon stock plunges to two-year low following first-quarter loss | TechCrunch.
[viii] Soper, S and Singh, S. (2022, April 29). Finance.yahoo.com. Amazon Will Close Six Whole Foods Stores in Four States. [Online] Available at: Amazon Will Close Six Whole Foods Stores in Four States (yahoo.com).
[ix] Goodkind, N. (2022, May 1). CNN.com. Has inflation reached a peak? Three signs that prices could soon come down. [Online] Available at: Has inflation reached a peak? Three signs that prices could soon come down – CNN.
[x] Tappe, A. (2022, April 29). CNN.com. The Fed’s favorite inflation measure hit a fresh 40-year high. [Online] Available at: The Fed’s favorite inflation measure hit a fresh 40-year high – CNN.
[xi] (2022, May 1). Tradingview.com. WinningTrader,CBOE 10 YR Treasury Note Yield. [Online] Available at: TradingView Chart.
[xii] (2022, April 28). Fred.stlouisfed.org. 30-Year Fixed Rate Mortgage Average in the United States. [Online] Available at: 30-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US) | FRED | St. Louis Fed (stlouisfed.org).
[xiii] (2022, May 5). Gasprices.aaa.com. Today’s AAA National Average: Gas Prices. [Online] Available at: AAA Gas Prices.
[xiv] (2022, May 1). Tradingview.com. WinningTrader, Light Crude Oil Futures. [Online] Available at: TradingView Chart.
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