Weekly Economic and Stock Market Commentary: June 21, 2022
As for the stock market specifically:
It was the second consecutive multiple percentage point drop for the major market averages. That action brought the S & P 500 into bear market territory for the year.
Of the 6 major asset classes I examine, last week cash overtook US stocks. It’s been some time since that happened.
The typical time period between bear markets is roughly 5 years (going back to 1929). We had a brief bear market in 2020, but none in the 12 years before that. We had 3 bear markets between 1999 and 2008.
The average decline during bear markets going back to 1929 is 38%. The bear markets in the early 2000s, and in 2020 saw declines in the neighborhood of 50%. That is not a prediction, but a recitation of history.
For those readers/clients in our fee-based accounts, you’ll note that I’ve been raising cash for a number of months. Today’s market environment is beginning to remind me of 2007-2009 when we coined the phrase “sometimes cash is the bull market”. I don’t like saying these things, but am certainly glad that cash has been and is likely to continue to be raised.
Also please remember, my indicators do take time for weights of evidence to present themselves. As such, I will never be able to sell at the top of any market, nor will I ever be able to buy at the bottom of any market. My methods are based on weights of evidence and to use the analogy of an electric light switch, my indicators are NOT the on/off switch, but more akin to a dimmer switch, with incremental buys/sells.
It was another bad week for the bullish percent numbers. We clearly are in WEALTH PRESERVATION mode.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of June 17, 2022 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Federal Reserve met last week and raised short-term interest rates by 0.75%. That was the largest rate increase at a given meeting since 1994. The group did this as an attempt to control the inflationary pressures in the economy. After the meeting, Chairman Powell said the group will continue to raise rates, and one of the board members called for another 0.75% increase at the next meeting at the end of July. Chairman Powell also said he anticipates a “soft landing” for the economy – meaning no recession. I believe that may be a late expectation given there are 10 days left in the quarter which likely will conclude the textbook definition of recession.
The Department of Labor announced the May Producer Price Index numbers. Producer prices rose 0.8% in May, substantially higher than April. For those who do not drive cars nor eat food, core prices which exclude food and energy also rose faster than in April and came in at 0.5% for the month. May was the sixth consecutive month of double-digit increases in the PPI.
The Federal Reserve said Industrial Production grew at a rate of 0.2% in May. This was a slowdown from the 1.4% gain in April. Manufacturing had a slight decline in May. That was the first decline since January. Capacity utilization rose to 79%.
The Commerce Department reported retail sales in May dropped 0.3% compared to April. This was the only decline in retail sales in 2022. Low vehicle sales led the way to the lower number.