| INFLATION EASES JUST A BIT: A few weeks ago, I stated the following in this email newsletter:
“For the past few months, a low inflation month (in the 12 month calculation) has been falling off and being replaced by a bigger inflation month. Now each month a large inflation month will come off the 12-month calculation so [Janet Yellen] may be right that the 12-month inflation number may peak soon….”
Last week, April’s CPI number came out at 0.3% after rising 1.2% the month before. Now the 12-month inflation figure is 8.3%, just a bit lower than the 8.5% figure for last month. It isn’t much, and it isn’t even as much as many had hoped or predicted, but it did go down. April was also the lowest inflation month since January of 2021.
So how do we parse this number? It is not all bad nor all good. The number would have been higher, but gas prices actually came down in April (and they have already shot back up in May). Prices for information technology, hardware and services decreased by 1.2%, the biggest monthly drop since 2009. Manufactured goods excluding food and energy, a big driver of post-pandemic inflation, was essentially flat. Wage growth for restaurant workers, after rising at a 30% yearly rate in the first half of 2021, is settling down at around a 5% rate, the pre-pandemic norm. Housing inflation is running at about two times the pre-pandemic rate.
Overall, this number did not immediately sit well with investors. Inflation remains the biggest concern. This was a step in the right direction, but we all need to see more. |
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| STOCKS DECREASE ONCE AGAIN: The week ended with a late Thursday rally and a full-day Friday rally, but that was not enough to lift stocks out of their earlier week doldrums. It seemed that late in the week investors decided the slide may have gone too far, at least with some companies, and bargain hunting ensued. The swoon earlier in the week, starting right out of the gate on Monday. Nothing new is triggering the selloff. Concerns about inflation, whether the Fed will navigate well lead to fears of recession. If there is an actual recession, corporate earnings decrease and corporate valuations follow, leading to lower stock prices. The current mood reflects this overall concern. |
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| LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices. |
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WHAT WILL THE STOCK MARKET DO NEXT?: This is a question we get a lot, especially now. The term “correction” is often used instead of “crash” when prices for stocks fall as they have recently. Investors are trying to find the appropriate price for stocks given all available factors and variables. One common measure is the relationship between a company’s stock price to its projected earnings for the next twelve months. That ratio for S&P 500 stocks has been running high for a while. Even though the S&P 500 index has fallen over 16% to start 2022, the S&P 500 traded late this week at 16.8 times its projected earnings over the next 12 months. That is still above the average multiple of 15.7 over the past 20 years, but down from a recent peak of 24.1 in September 2020. Could they go down more? If sentiment for recession gets stronger, then yes, they can. If economic growth, even slower growth, continues, and investors get some confidence in that, stocks will settle and begin to grow, perhaps slowly, once again. Until there is more certainty around that big issue, volatility will continue. But, yes, the market could easily drop another 10-15%, and soon, or it could stabilize and begin moving up creating a nice return for the remainder of the year. Be invested for the long term.
(Sources: factset.com AND wsj.com) |
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| THE FED: Given the April inflation number, it seems pretty clear that the Fed will raise rates by 0.5% again in the next couple of meetings. It will only go higher than 0.5% if inflation gets worse The bigger question is where they want to settle. Are they going to target an ultimate ending point of 3%, or perhaps as high as 4%? The Fed probably does not know that yet. Again, it all depends on inflation, the Fed’s number one priority right now. |
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MORTGAGE RATE RISE PAUSES: According to MortgageNewsDaily.com, the average rate for a 30-year, fixed rate mortgage in the U.S. moved down last week from 5.625% to 5.375%.
(Source: mortgagenewsdaily.com/markets/mortgage-rates-05122022) |
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CONTINUING TO WATCH THE DATA: The number of people dying in the U.S. and in the world who are COVID positive continues to decrease. U.S. deaths dropped another 11% after a 25%. World deaths moved down by 22%. (World data on bottom graph below).
(Source: worldometers.info/coronavirus) |
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| HOSPITALIZATIONS: Hospitalizations and infections for COVID in the U.S. have hit bottoms and have gradually increased over the past few weeks. They remain significantly below the recent and not-so-recent peaks, and so far these rising numbers do not seem to be leading to serious injury and death. Deaths and trips to the ICU remain near or at record lows since the pandemic began. (Sources: covid.cdc.gov/covid-data-tracker AND worldometers.info/coronavirus/ AND coronavirus.jhu.edu/data/hospitalization-7-day-trend). |
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| CONTINUED GROWTH: We greatly appreciate all of you who have been referring people to Stonecrop Wealth Advisors. We are getting a lot of new clients, and we are growing! We love what we do here, and I get such enjoyment working with the team here. I am grateful I get to do what I do for a living. It is meaningful and rewarding work. |
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| LONGEST DRIVE: Stonecrop Wealth Advisors sponsored the Cairn University charity golf outing this past week. I actually won a “longest drive” contest! That was a first for me. One of my teammates used to play professionally, and so my team was competitive. We missed ultimate victory by one stroke. |
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| I CAN’T HELP IT: My brain does something when I am in social settings. During conversations my brain just naturally seeks out puns. I was able to spend time with my two brothers this weekend. At one point we, and our wives, were walking through a farmer’s market. We came up to a booth that said “We Sharpen Anything.” You could see them sharpening a couple of knives. I asked, “My brother isn’t very funny, can you sharpen his wit?” Yes, it’s a groaning eye roller, but I can’t help myself. |
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Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.
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Douglas R. MacGray, J.D., C.F.P. ®
President
Stonecrop Wealth Advisors, LLC
Direct | Cell | Fax
(610) 628 4545
dmacgray@stonecropadvisors.com |
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| “Neither genius, fame, nor love show the greatness of the soul. Only kindness can do that.” Jean Baptiste Henri Lacordaire,
“Victory is won through many advisors.” Proverbs 11:14 |
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SOURCES:
INFLATON EASES JUST A BIT: bls.gov/news.release/cpi.nr0.htm AND theovershoot.co/p/us-inflation-is-getting-worse-and?s=r |
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| (c) 2022 Stonecrop Wealth Advisors, LLC, All Rights Reserved |
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*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.
*Bloomberg Barclays U.S. Aggregate: This is a measure of the U.S. bond markets. |
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