The S&P 500 sustained substantial losses last week and entered bear market territory (down 20% or more) on the heels of last week's surprise CPI numbers, fueled by fears that accelerating rate increases by the Federal Reserve will lead to an end to economic expansion.
The benchmark index was down 5.79% in the latest week at 3,674.84 from last week's close of 3,900.86, making this the 10th time in 11 weeks that the index has closed in the red and the third consecutive negative close. It was the steepest weekly drop in the index since March 2020.1,2,3
Every sector suffered losses with the Energy Sector taking the brunt of last week's swoon. The risk of a recession and demand destruction for fuel drove the sector 17% lower.
We are a very long way from running fighter jets or cargo ships on renewables, but in time the energy for most heating, cooling, home and office electricity, and personal transportation will be supplied by renewables. Putin's war has increased the industrialized West's resolve to accelerate the process.
I believe that in 20-25 years the fossil fuel portion of the Energy Sector will be an order of magnitude smaller than it is today. But we will have to keep an eye on which companies in the sector invest heavily in renewables the way BP is.4 Just like technology no longer means mainframes, in time energy will no longer mean fossil fuels.
Stocks were under pressure all week due to inflation worries, higher yields, and rising recession concerns. In advance of the much-awaited mid-week meeting of the Federal Open Market Committee (FOMC), bond yields jumped, and stocks retreated on speculation that the Fed might raise rates by 75 basis points. When the Fed announced a 75 basis point hike on Wednesday, stocks rebounded strongly.
The enthusiasm was short-lived. Stocks resumed their slide on Thursday as global central banks followed with their own rate hikes. Recession fears grew based on a weak housing starts report and a contraction in the Philadelphia Fed Business Index–the first contraction since May 2020.5
As I write this on a Tuesday (the market was closed Monday for the Juneteenth holiday) the S&P is up 2.49% at almost mid-day with growth stocks Apple, Tesla, Microsoft, Google, Amazon, and Nvidia pulling up the index. We are reminded that markets can turn on a dime on news that is out of our control and beyond anyone's ability to consistently forecast.
Fed Rate Hike
The Federal Reserve announced a 0.75% hike in the federal funds rate, making it the biggest rate increase since 1994 and signaling its commitment to address inflation. The report from last week’s FOMC meeting also indicated new rate projections, showing that all members expect rates to rise to at least 3.0% by year-end, with half the members expecting rates to rise to 3.375%.6
The 75 basis point rate increase was a late-developing change from earlier Fed guidance of a 50 basis point increase. The change of heart was in response to recent inflation data and rising inflationary expectations.7
This Week: Key Economic Data
Tuesday: Existing Home Sales.
Thursday: Jobless Claims. Purchasing Managers’ Index (PMI).
Friday: New Home Sales. Consumer Sentiment.
Source: Econoday, June 17, 2022
This Week: Companies Reporting Earnings
Tuesday: Lennar Corporation (LEN).
Wednesday: KB Home (KBH).
Thursday: FedEx Corporation (FDX), Darden Restaurants, Inc. (DRI).
Source: Zacks, June 17, 2022
"In memory everything seems to happen to music."
– Tennessee Williams
Things You Can Do on the IRS Website
While the IRS website might not be in your top bookmarks, the website is helpful for a lot of things regarding taxes. Here are just a few things you can do on the site:
* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov8
Improve Your Swimming with Masters Swim
Swimming is a fantastic full-body, low-impact workout for people of all ages. Check out US Masters Swimming for a club near you as the weather warms up! USMS is an organized swimming club for swimmers of all levels. Swimming with a Masters club is a great way to build camaraderie, meet new friends, get better at swimming, and enjoy a great workout. There are clubs all over the country, likely at a pool near you, which you can find through the Club Finder tool on the USMS website. The coaches will help you start (and stick with) a swimming routine, improve your stroke, and learn more about the sport.
Tip adapted from US Masters Swimming9
It has 18 legs, is uniformed, walks and runs on grass and artificial turf, and catches flies. What is it?
Last week’s riddle: What surrounds everyone and is the end of time and space? Riddle answer: The letter "e."
Stepped waterfall group Blue Moon Valley, Lijiang, China
Footnotes and Sources
2. The Wall Street Journal, June 17, 2022
3. The Wall Street Journal, June 17, 2022
4. The Guardian, February 10, 2022
5. CNBC, June 16, 2022
6. The Wall Street Journal, June 15, 2022
7. The Wall Street Journal, June 15, 2022
8. IRS.gov, March 20, 2020
9. usms.org, February 22, 2022
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Weekly Market Insights: Fed Rate Hike Triggers Market Dip
June 21, 2022