Weekly Economic and Stock Market Commentary: May 16, 2022
As for the stock market specifically:
Triskaidekaphobia didn’t come to the minds of investors last Friday, as investors rushed into the markets after getting beaten up Monday through Thursday. It was still a bad week, with the major market averages down more than 2 percent across the board. The Nasdaq Composite moved solidly into bear market territory.
Here is some information that may be dated. Once the market enters a bear market – defined by a decline of 20%, the average decline is 38%. There still is a way to go to get to that level.
The relative strength of stocks compared to bonds and/or cash, favors bonds and/or cash.
Adding to the negative part of the story, both the Nasdaq Composite and S & P 500 made sell signals below trendline.
Experience with this set of conditions tells me it better to raise cash levels, and have it ready to shift to the new strength when the market regains its footing. I am not smart enough to say when that will be. Nor do I know what the market levels will be.
It is fair to ask “OK, Smarty pants. Why don’t you sell all the stuff?”
The answer is that the market is well oversold, with the bullish percent levels in the green zone, which suggests a large bounce can come soon (NOT A PREDICTION). The second part of the answer is that selling everything is almost always the wrong decision (again in my 30 years of experience).
There are two general ways for the oversold condition to resolve itself. The first is for a major move up. The second is for the market to sit still for a few weeks, thus allowing moving averages to decrease. Once again, I am not smart enough to tell you in advance what will happen.
While we have experienced worse, it was a difficult week for the indicators. Looking for a bright-side, we are in the green zone, but in columns of Os, so the defense remains on the field. WEALTH PRESERVATION shall continue until further notice.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of May 9, 2022 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Department of Labor gave us inflation reports last week. They announced the April Consumer Price Index rose by 8.3% compared to April 2021. This was above expectations, but the first decline in nine months. The monthly gain was 0.3%. Gasoline prices declined in April, but airline tickets rose substantially. Food prices continued to rise.
The Labor Department also told us Producer Prices in April rose 11.0 percent compared April 2021. This was the fifth consecutive double-digit gain in producer prices. The March number was the highest on record dating back to 2010. The monthly gain was 0.5%, compared to the 1.6% gain in March compared to February.
For all of us who have been thinking we’re paying higher taxes than before, I am going to close with a report from the Treasury Department. In April, the Treasury Department collected a record amount of revenue for one month, $864 billion dollars. This was approximately double the amount of April 2021. Please bear in mind that revenue numbers for 2021 were based largely on tax filings of the 2020 year. The revenue gain was nearly double (97%) compared to April 2021. The department also noted that government spent 16% less than in April 2021. The government spent $555 billion in April. This made for record surplus of $309 billion for the month. The government collected more than $3 trillion so far this fiscal year, which is another record high.
The bad news in the report is that debt service is 32% higher than in 2021 – a reflection of the higher interest rates. Interest costs in April were $60 billion, another record high.
As always, please contact me if you have any questions about this week’s Economic and Stock Market Commentary.