An Uncertain Market
Stocks experienced wild swings last week, in part, due to ongoing uncertainty over economic health and the path of inflation. Investors seemed conflicted when interpreting the data, in some instances viewing economic strength as a negative since it may mean more aggressive rate hikes from the Fed.
Illustrative of how this uncertainty has played out, stocks surged higher on Thursday despite comments from Fed Vice Chair Lael Brainard indicating it’s unlikely that the Fed will pause on rate hikes. Then on Friday, stocks dropped as a better-than-expected jobs report raised concerns about monetary policy.
Strong Job Growth
The U.S. economy added 390,000 jobs in May, a slowdown from recent months but higher than consensus estimates. Job gains registered in several categories, led by leisure and hospitality, professional and business services, and warehousing and transportation. The retail sector lost jobs.1
The unemployment rate remained unchanged at 3.6%. Wage growth cooled off, with a 12-month increase of 5.2%, down from April’s year-over-year jump of 5.5%. Finally, the labor participation rate ticked higher again, reflecting how job availability is helping to pull Americans off the labor-market sidelines.2
Over the past few weeks, we’ve come across some charts and visuals that aren’t getting enough attention because of the media’s preference for doom and gloom. So, we wanted to share these with you followed by some brief commentary to offer an alternative to the perpetual apocalypse forecasts.
Above is the Fear and Greed Index. As the graphic shows, "extreme fear" or "fear" are the dominant feelings as of late. On the surface, this may appear to be a cause for concern, but there is a funny saying that “The market has a way of disappointing the greatest number of people.” We have found this to be quite true as the next chart shows.
There is actually plenty of data to support the fact that the market typically turns when fear hits its peak. As we can see in the graphic below, in the year that follows a “sentiment trough” (though it remains to be seen if this is the trough), subsequent 12-month returns have averaged +24.9%! If nothing else, this provides an important reminder that once the market turns, it does so quickly which is why staying invested is so important.
Footnotes and Sources
1. CNBC, June 3, 2022
2. CNBC, June 3, 2022