ND&S Weekly Commentary 7.18.22 – The Yo-yo Makes Investing Hard

July 18, 2022

Consumer and Producer Price Index (CPI, PPI) numbers were reported last week, and both came in a little hotter than the market was anticipating. The CPI was expected to be high at 8.8% but surprised at a 9.1% annual rate. Initially stocks sold off and bonds rallied. Surprisingly, the market shook off that initial drop and recovered only to slide back marginally. Then, the PPI came out at 1.1% versus 0.8% monthly increase and that was enough to push investors away from equities and drive markets lower. A decent rally on Thursday off those lows carried into Friday and though down for the week, markets were not off much.

The equity markets are searching for their bottoms. At any sign of recovery, the market has mini rallies -classic bear market action. This signals the investors are there, the cash is there, and when conviction returns, markets like this one often come screaming back to higher levels. The coming near-term news (earnings, guidance, actual rate hike, Fed comments) is likely to pull markets down a bit more, but there is real pent-up demand for equities, and it is easy to miss the opportunity by trying to time the market. Bonds were slightly higher over the week and the treasury curve has flattened.

For the week, the DJIA declined 0.16%, while the S&P 500 dropped 0.91%. The tech-heavy Nasdaq finished 1.57% lower. International markets were also lower, with the MSCI EAFE Index down 1.75% while emerging market equities (MSCI EM) gave back 3.68%. Small company stocks, represented by the Russell 2000, declined 1.40%. On a positive note, fixed income, represented by the Bloomberg/Barclays Aggregate recovered 0.89% for the week. The 10 YR US Treasury closed at a yield of 2.93%, down 16bps from 3.09% the week prior. Gold prices ($1,812/oz.) closed lower on the week to $1,706/oz. – down 1.95%. Oil (WTI) prices also retreated last week closing at $97.59 per barrel.

This week there will be reports on housing and home-building data. Expect continued deterioration as the economy is slowing. Leading economic indicators will be reported on Thursday as will Philadelphia Fed manufacturing index and jobs data. The jobs data is a key factor in predicting whether the monetary policy at work can avoid a strong recession or even dodge a recession altogether.

The 2022 equity and fixed income markets in the US and across the globe have been among the most difficult investors have ever experienced. Investing implies a long-term commitment with solid results reaped in the future. Because the public securities markets provide current prices at every moment, it is natural to observe these “marks” and then to be drawn into the emotional swings these near-term valuations can produce. This can undermine the efforts of even the very seasoned investors. It is challenging, but we must remember the time horizon of our investing and keep that perspective in mind, always. Watching markets is like watching a person play with a yo-yo on an escalator…if you do not keep the big picture in mind, the near-term results appear more dramatic than they will tun out be.

“Nothing great in the world has ever been accomplished without passion.” – Georg Wilhelm Friedrich Hegel