Summer is upon us but there have been very few lazy days so far in the markets.
In the second quarter, the S&P 500 fell 16%, mostly in June after record inflation data from April and May, bringing the Year-to-Date return down 20%, the worst start to a year since 1970. The rest of the US equity markets and those abroad faired equally poorly. The negative superlatives extend into the bond market as well with the Bloomberg Aggregate Bond falling 10.4% so far in 2022. In short, there were few places to hide.
The causes for concern are well documented: record setting inflation, the Russian invasion of Ukraine and elevated valuations for stocks. We also highlight the excess growth of the Money Supply (M2) that significantly contributed to inflation, the source of most angst.
That being said, we are on the lookout for signs of improvement. One contrarian indicator, Consumer Sentiment, just registered an all-time low. Another positive factor is the recent fall in the Money Supply (M2) on the way back to normal levels. And Price/Earnings ratios are coming down to their historical averages. Finally, typical equity corrections are down 20-35% from the peak so the worst may be over, especially if a shallow recession transpires.
This cautious optimism is aligned with a quote from Warren Buffett:
“As an investor, widespread fear is your friend because it serves up bargain purchases . . .”
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Your Pointe Capital Management Team