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Weekly Economic and Stock Market Commentary: May 9, 2022


Weekly Economic and Stock Market Commentary: May 9, 2022

As for the stock market specifically:

Last week was another example of why I frequently explain why people should not expect rationality when it comes to the stock market movement. It also is an example of why I don’t spend much time relying upon earnings, economic forecasts, and the like for my investment decisions.

It also served as a memory jogger going back to my youth when I would watch ABC’s Wide World of Sports and hear Jim McKay’s voiceover speaking of the “thrill of victory” while showing the Little League World Series champions bouncing up and down as a group, and speaking about “the agony of defeat” while showing would be ski jumper lose his balance before the end of the jump ramp splaying his body in multiple directions simultaneously.

Interest Rates

Last Wednesday, the Federal Reserve announced a rate hike of one-half of a percentage point instead of three-quarters of a percentage point; the market had a “thrill of victory” day, with the major market averages up more than three percentage points across the board.

By Thursday, the interest rate hike suddenly became not strong enough, and the market had an agony of defeat day, which more than erased the gains of Wednesday. In fact, Thursday was the worst day since March 2020. Those days were fun.

I have yet to find any intelligent comments about how economic conditions changed so dramatically in the span of 24 hours. You are free to look for one elsewhere, but I believe you are unlikely to find one.

Despite all the grand movements last week, the end week results showed little movement. In fact, during the mid-afternoon Friday, the weekly numbers showed gains. The closing numbers, though, were losses across the board.

The bullish percent indicators all declined last week. The Optionable Bullish Percent indicator fell below the 30 percent level. That gives us two of the three in the green zone. That does not mean buy yet, however. I continue to recommend WEALTH PRESERVATION strategies.

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of May 6, 2022 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Department of Labor announced the US added more than 400,000 jobs for the 12th consecutive month. The economy added 428,000 jobs in April, while the unemployment rate remained steady at 3.6%. Since September, the labor force had its first decline, with 363,000 people exiting the workforce. That put the labor participation rate at 62.2%. Average hourly earnings rose 5.5% in the past year and 0.3% in April, well below the inflation rate. Revisions to February and March employment numbers resulted in a decline from previously reported gains. The economy now posts 11.5 million jobs available but not filled. That is a record number.

The Federal Reserve announced a half-point interest rate increase for short-term lending. Chairman Powell stated after the meeting that he is confident the central bank can engineer a soft landing for the economy and avoid a recession. Let us hope that the group does a better job on that front than it has done with inflation and its “transitory” nature, which ironically just celebrated its one-year anniversary since the phrase became somewhat common parlance.

Questions or want to talk? Call 973-538-7030 or email philip.rongo@ibexwealth.com.