Welcome back to the Monthly Market Wrap from YCharts, where we review and break down the most important market trends for advisors and their clients every month. As always, feel free to download and share any visuals with clients and colleagues, or on social media.
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Energy was the biggest winner in May, closing the month 16% higher while the other ten sectors were evenly split between positive and negative. Utilities rose 4.3%, the most of any other sector, while Consumer Discretionary’s 5.1% decline lagged all others, marking another contrast in recent performance between defensive and cyclical sectors.
Believe it or not, the inflation rate declined for the first time in seven months, down to 8.26% per April data. However, some areas of the economy, and notably the real estate sector, couldn’t ignore the fact that inflation remains at 40-year highs. Sales for new single-family homes plunged 16.6%, and existing home sales were down for the third straight month as well. May 2022 also set a new high for pain felt at the pump, with US Retail Gas Prices reaching a record $4.73 per gallon.
Short and long-term interest rates increased significantly in May, but yields on all medium-term treasury notes declined. The rate on 1-Month T-Bills nearly doubled over the course of the month to 0.73%, while the 3-Month T-Bill rate surpassed 1% for the first time in over two years, closing out May at 1.16%. Accelerated rate hikes by the Federal Reserve have been the primary driver of short-term interest rates. 20-Year and 30-Year Bonds were both above 3% at May’s end, yielding 3.28% and 3.07% respectively. With the exception of those 30-Year and 20-Year rates, the yield curve became more normalized in May.
It’s no secret that the world is pretty crazy right now.
Inflation is at a 40-year high, road trips to see grandma have never been more expensive, and the NASDAQ is in bear market territory, to name a few noteworthy events. For a lot of investors, the NASDAQ’s 20% fall from its all-time high is especially concerning because it’s the second such decline in as many years.
But how severe is the current NASDAQ drawdown, historically speaking? Toward the end of May, the NASDAQ Composite Index was down by as much as 29.9% from its all-time high set on November 19th, 2021. For comparison, there are four other NASDAQ drawdowns on record which were equally or more severe than the one incurred last month.
Today, it feels like every high-flying NASDAQ name is down 70% or more, making this current bear an especially hungry one. But, excluding the Dot-Com Bubble and the ‘08 Financial Crisis, the NASDAQ’s four next largest drawdowns have been right around the 30% mark, matching how far the index has sunk in 2022.
Is this an indication the bear might be getting ready for hibernation?
If you bought into the iShares Russell 1000 Value ETF (IWD) one year ago, that investment would be barely positive as of May 31st, 2022. However, relative to its counterpart at month’s end, Value has outperformed Growth (IWF) by 7.2 percentage points over the last twelve months. Year-to-date, Value is down 4.6%, and Growth is 22% lower, thanks in part to an additional 2.3% decline in May.
The unemployment rate remained unchanged in April at 3.6%, but the labor force participation rate declined by 0.2% to 62.2%. Despite US unemployment falling back to its pre-pandemic lows, labor force participation has yet to recover in the same way, sitting 1.2 percentage points below its February 2020 level. 210,000 initial jobless claims were filed during the week of May 21st, a notable increase from the 53-year low of 168,000 recorded in the first week of April.