Week of May 23, 2022

Last week was very painful for investors.  Profit misses in earnings results by Walmart and Target sparked investor concern that high inflation is crimping consumer spending, while eating into companies’ profit margins.  Walmart stock plunged more than 19% and Target plummeted about 29%, setting off major selling. Last Friday, the S&P 500 traded into bear-market territory before a late-day rally helped the index eke out a small gain on the day.

For the week, the S&P 500 dropped 3% and has now fallen 18.7% since its January 3, 2022 all-time high.  The Dow declined 2.9%, its eighth straight weekly loss for its longest losing streak since April 1932.  The NASDAQ slid 3.8% and is down 28.2% from its early January high.

The energy crisis continues to drive prices upward.  “Unfortunately, gasoline prices bounced back up to another record high in May and with inflation rampant across most categories, people are spending more money on fewer items,” Beth Ann Bovino, U.S. chief economist for S&P Global Ratings.  “Purchasing power has been squeezed, particularly in low-income households,” she said.

Investors are waiting to see what moves the Federal Reserve makes at their June and July meetings, questioning how fast interest rates will increase.  “We continue to expect that the financial conditions tightening triggered by Fed policy will likely lead to a recession by end 2023,” wrote Matthew Luzzetti, Deutsche Bank chief U.S. economist.

This week, investors will get fresh economic data on inflation, consumer spending and disposable income.  The U.S. economic calendar also includes readings on consumer sentiment, manufacturing and services, initial jobless claims and minutes from the Federal Open Market Committee’s last policy meeting earlier this month.