Weekly Market Commentary July 18, 2022
Nobody is happy, but Americans are feeling more optimistic.
Last week, headlines blasted the new inflation numbers. Prices were up more than 9% year-over-year in June, according to the Bureau of Labor Statistic’s Consumer Price Index (CPI). When you dig into the numbers, energy prices were up 41.6 percent year-over-year and food prices were up 10.4 percent.
“Prices are rising just about everywhere in the world, in part a consequence of Russia's invasion of Ukraine, which has elevated energy and food prices, and in part because of the supply chain bottlenecks that have driven U.S. prices up,” reported Paul Wiseman of U.S. News & World Report.
The U.S. inflation numbers caused markets to tumble early in the week as investors speculated about whether the Federal Reserve would decide to raise the federal funds rate at a faster pace at its next meeting, reported Ben Levisohn of Barron’s.
Then the retail sales and consumer sentiment data arrived.
After adjusting for inflation, retail sales slowed in June, just as they had in May, reported Megan Cassella of Barron’s. Retail sales data are a leading indicator, meaning they provide information about what may be ahead, while the CPI is a lagging indicator that provides information about what has already happened. Slower retail sales suggest demand is falling and lower prices may be ahead. The news cooled some investors’ rate-hike concerns.
On Friday, the University of Michigan’s Consumer Sentiment Survey showed a modest improvement. Barron’s reported, “…consumer sentiment that had hit an all-time low in June improved slightly in July, likely a reflection of the recent fall in gas prices. And long-term inflation expectations dropped modestly over the month as well. Together, the latest data shows early signs that the Federal Reserve is making progress in its quest to cool the economy.”
Last week, Barron’s reported that major U.S. stock indices declined. Yields on shorter maturity Treasuries rose last week, while yields on longer maturity Treasuries fell.
WHAT’S THE DIFFERENCE BETWEEN MARKET VOLATILITY AND RISK? Smooth sailing isn’t a term anyone would use to describe 2022. So far, it has been a remarkably volatile year. On more than half of the days during the second quarter of 2022, the U.S. stock market moved up or down by 1 percent or more. “The quarter had 10 days where the market moved 2% or more compared to a median of two days between 2019 and 2021,” reported Lauren Solberg of Morningstar.
While volatility is not the same as risk, the chances of incurring a loss may increase during periods of market volatility, in large part, that’s because investors become anxious about falling share prices and sell when they might be better off holding. See what you know about the difference between risk and volatility by taking this brief quiz.
1. What is market volatility?
a. Asset prices rising over a period of time.
b. Asset prices falling over a period of time.
c. The frequency and size of asset price swings, higher and lower.
d. A measure of how easy it is to buy and sell stock.
2. What is risk?
a. The chance of losing some or all of an investment.
b. The chance that actual investment returns will be different from anticipated investment returns.
c. A vulnerability that can be managed through asset allocation and diversification.
d, All of the above.
3. How can the effects of stock market volatility be limited?
a. By timing the market
b. By avoiding bonds
c. Through asset allocation and investment diversification
d. By avoiding stocks
4. Which famous investor said "When people are desperately trying to sell, I buy. When people are desperately trying to buy, I sell. It has worked out very well over the years."
a. Warren Buffett
b. Abby Joseph Cohen
c. Sir John Templeton
d. Abigail Johnson
If you’re feeling overwhelmed and uncertain in this volatile market environment, give us a call. One of the most important services we offer is helping people stay calm and make sound decisions during difficult times.
Weekly Focus – Think About It
“Being aware of challenges doesn't make them sting less, but once you see them, you can assess the best way to handle them.”
—Mellody Hobson, CEO and financial educator
Answers: 1) c; 2) d; 3) c; 4) c
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* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named registered investment adviser.
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* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
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https://www.barrons.com/articles/stock-market-had-finished-up-on-friday-its-still-a-bear-market-51657929639?refsec=the-trader&mod=topics_the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/07-18-22_Barrons_Dont%20Get%20Your%20Hopes%20Up%20Stocks%20Are%20Still%20in%20a%20Bear%20Market_3.pdf)
https://www.barrons.com/articles/retail-sales-michigan-consumer-sentiment-report-economy-51657878999 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/07-18-22_Barrons_Retail%20Sales%20Actually%20Slowed%20Down%20What%20It%20Means%20for%20the%20Fed_4.pdf)
http://www.sca.isr.umich.edu (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/07-18-22_Surveys%20of%20Consumers_Preliminary%20Results%20for%20July_6.pdf)
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