Take a look at last week’s market recap from Joe Gallemore, CIMA® Partner & Director of Investment Management for Argent Bridge Advisors. Watch the video now!
Joe’s Notes:
Stocks markets continued to experience volatility these past two weeks. The first week of May was essentially flat for most US equities, but last week saw another slide across the board. This brings the S&P 500 to just around -15% for the year as of May 13th.
The cause of the slide was the release of the April inflation readings. The release showed that while things didn’t worsen much, the overall number still remains high. Inflation is obviously the major wet-blanket on the market right now. It’s the bogie that’s driving everything. When the high monthly inflation numbers are released there’s big volatility; when there’s no news, its calm; when the Fed speaks vaguely about how it intends to respond to inflation, there’s volatility again.
- The Fed is doing what it can to quell demand to help slow price increases. Hopefully there’s an improvement to Covid cases world wide, primarily in China, to help global supply meet demand for goods. A peaceful resolution to the war in Ukraine will also ease inflation pressures.
- Another invisible effect of inflation is what it does for market sentiment, which is basically peoples’ willingness to invest. Inflation touches every consumer and retail investor, and when it is high, resources are diverted away from the market. So when inflation turns around, sentiment should begin to improve and money flows back into stocks.
We are in a period of daily volatility with sweeping drawdowns followed by flash-recoveries of 1% or two. Only to repeat the pattern. We hope this is an environment in which actively managed strategies can add a lot of value in your portfolio.
- In a bumpy market like this, especially after stock prices have been brought back down to earth so much already, there seems to be a renewed focus on company fundamentals. How durable are your revenue streams if we’re going into recession? How much debt do you have?… because that going to matter with higher interest rates. Is management adapting?
- When the broad market experiences significant drawdowns like the one we’re in, companies with good answers to these questions may be unduly sold off. Managers call this price discovery; and market environments such as the current one is where they do most of their shopping.
- We hope this volatility results in outstanding performance for active strategies, as it has during many past challenging periods.
