MARKET COMMENTARY
Investment Committee Meeting Highlights
June, 2022
MARKET UPDATE
Equity markets spent most of May plunging further into the red following April’s collapse, with the S&P 500 at one point down 5.59% from the end of April through May 19th. However, a rally in the last several trading days of the month allowed equity markets to climb out of the red and end the month positive. The S&P 500 lagged its international peers, rising 0.18% on a total return basis compared to 0.75% and 0.44% for the MSCI EAFE and MSCI Emerging Market indices, respectively.
While the bond market also started the month in the red, it began climbing back early in the month, with the Bloomberg US Aggregate climbing 0.64% over the month as slight shifts downward on the short-end of the yield curve helped bond prices.
Earlier this month, price increases showed signs of slowing with inflation measures of both the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) starting to slow on a year-over-year basis. These slowdowns have created glimmers of hope in the market that the Fed may be able to slow down its hiking cycle towards the end of this year or early next year. That said, the picture is not clear with the April’s month-over-month core CPI, which excludes food and energy, accelerating over March.
The economic picture continues to be mixed with first quarter GDP being revised slightly downward (-1.4% to -1.5% annualized rate) though the consumer, the largest segment of the economy, continues to push forward with resilient demand in the face of higher prices. Helped by a still hot labor market, first quarter’s consumer spending was revised upward increasing to 3.1% from 2.7%. Meanwhile, April’s consumer spending rose 0.9% outpacing incomes which rose 0.4%.
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ADVISORS’ PERSPECTIVE
As Q1 2022 EPS reporting period has ended, market and economic concerns from the beginning of the year continue as we reach the mid-point of 2022. Rising risk of a recession adds additional pressure on an already volatile market, potentially increasing further in 2023, largely because of Fed tightening, uncertainty about supply chain issues and geopolitical developments. However, markets were able to rally in May to end positively for the month after a rough start that spilled over from April selloffs.
Despite COVID restrictions in China being eased, supply chain issues will persist as companies continue to struggle to find labor. Shanghai requires a negative COVID test within the last 72 hours to access public spaces such as public transportation, malls, and banks. An easing of restrictions would bring positive news for the global economy as half of the world’s 20 largest ports are in China.
Key indicators imply that economic growth is slowing. Since May, rate hike expectations for the September meeting have fluctuated with the market relatively undecided whether the Fed will hike 25 or 50 basis points. Quickly changing expectations can cause ripples in both the bond and equity market though the market appears fairly convinced of what the Fed will do over the near-term, for now at least.
While bonds gained some ground in April, the Bloomberg US Aggregate index has fallen 8.92% so far in 2022, up from falling 9.50% at the end of April. Despite the improvement, it is still the worst start to the year since the index began publishing daily data in 1989. Bonds still need considerable gains to surpass the next-worse year, which was 1994 and ended the year down 2.83%.
Inflation finally started to calm down a bit in April while still extremely high on a year-over-year basis. Despite fears that the Fed has lost credibility on its inflation fight, markets are signaling the expectation that inflation will revert lower longer term.
Market volatility lessened recently compared to the beginning of 2022 however, investors’ fears still loom. We continue to use a quantitative investing approach and let the data guide our investing decisions with minimal emotion-based interferences. We continue to rebalance our portfolios at least bi-monthly and strive to ensure you remain in the best possible position to achieve your unique financial goals.
DISCLOSURE
This update is not intended to be relied upon as forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Hilltop Wealth Solutions to be reliable. The letter may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecast made will materialize. Additional information about Hilltop Wealth Solutions is available in its current disclosure documents, Form ADV, Form ADV Part 2A Brochure, and Client Relationship Summary Report which are accessible online via the SEC’s Investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC # 801-115255. Hilltop Wealth Solutions is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting, or tax advice.
