Equities Mixed, Positioning for Recovery
Equity markets were mixed last week, after the strong Friday jobs report market and inflation worries dragged stocks back down on Friday. The S&P 500 fell 1.2% on the week, with health care and financials lagging. Energy, Industrials, Technology, and Consumer Staples helped support the market.
The government data flow was mixed last week. Strong May payrolls in the U.S. left the jobless rate at just 3.6%. The official JOLTS (Job openings) series dropped sharply in April and private-sector measures suggest that this drop continued in May. Many technology firms announced cutbacks on new hiring and job openings. This reinforces that the Fed has work to do to get the economy back to a more sustainable inflation condition. Manufacturing ISM improved in May, but the services version pulled back and auto sales were weak.
Per Goldman Sachs, equity returns have remained challenged near inflation peaks. Historically, the equity market has fallen 2% on average in the 6-month run up to an inflation peak. However, in the subsequent 12 months after a peak, they observed strong equity market returns averaging 10%, even if a recession ensued. Our team continues to look for a slow inflation peak and decline this summer, followed by a stronger stock market in 4q22-1h23. We would continue to slowly position for a recovery. It is NOT the year of fast “dips” and “v-bottoms”, however periods of volatility and economic slowdowns have given investors the best opportunity for higher longer term marginal investment returns.
Stock Talk: Recession Guide for 2022
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