Weekly Market Update

Investor emotions continue to run high during this challenging period of broad market repricing, and despite a promising end to the week, the S&P 500 fell for the sixth straight week, a dubious distinction that has not occurred since 2011.  Heading into another crucial Wednesday market event, in this case April’s consumer price index (CPI), investors did attempt to position for a relief rally, but for the second week in a row, opportunistic bulls were punished as the buy-the-dip impulse that powered much of the market gains off the March 2020 lows has reversed into a relentless sell-the-rips mentality.  Entering the CPI release, investors were hoping for any signs of inflation potentially peaking, but while the headline figure did decelerate from 8.5% in March to 8.3% in April, expectations were for 8.1%.  Furthermore, core CPI, or inflation after stripping out food and energy, was notably high, signaling broader and more persistent inflation than feared.  As a result, buyers have gone on strike and over the last seven trading sessions the S&P 500 has experienced two days where over 90% of stock market action was to the downside, a notable flood of selling and possible signs of investor capitulation that previously had not occurred in 2022.

However, despite Wednesday’s CPI report not cooperating, stocks and bonds both appeared to stabilize into the end of the week, with the S&P 500 reclaiming the important psychological level of 4,000, and the yield on the 10-year US Treasury dipping back below 3% (bond prices and interest rates are inversely correlated). Friday saw the S&P 500 bounce well over 2%, a very welcome divergence from the recent trend of investors selling into the weekend, but with previous rally attempts proving very short lived, the burden of proof for continued strength into next week is high. That said, the end of March did see the S&P 500 register a 10% relief rally in about two weeks, so it would not surprise us to see a bounce, especially if we get any positive headlines around de-escalation in Ukraine or reduced economic lockdowns in China, particularly Shanghai. Ultimately, we view this market as not that different from March 2020 where investors required signs of coronavirus hospitalizations and cases peaking in New York and the Northeast before the market stabilized. However, in this case any credible and sustained market bounce will likely require a confirmation of inflation peaking. Therefore, while we are encouraged to see Monday’s +90% downside S&P 500 market session followed up by Friday’s +90% upside move, the first since June 2020, we are circling the June 10th consumer price index (CPI) report for May as a crucial market event that could either confirm or deny a potential market bottom.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder