May 2022 in Review

Daniel Zeigler, CFP®, CMFC®, Senior Portfolio Manager

Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager at Midland. I wanted to take a few minutes today to give you a brief update on the markets for the month of May.

Unfortunately, markets continued their volatility in the month of May, however, stocks did post strong gains in the last week of the month which ended many of the equity indexes’ seven-week losing streak. Stocks bounced back on a bear market bounce and on hopes the Federal Reserve can soon pause rate hikes, however, we may not see a sustained rebound until the Fed takes a clear dovish turn.

For the month of May, the S&P 500 was slightly positive for the month but still down about 12.76% for the year. The Nasdaq was down close to 2% for the month and still remains in bear market territory down about 22% for the year.

Equity market continues to closely watch any indication that inflation is cooling, and the economy is still growing and not headed for a recession. The next CPI inflation numbers will be announced on June 10^th, and the market is expecting inflation to rise 8.1% YOY. Investors will be keeping a close eye on this number for continued signs of inflation slowing.

The good news with this year’s market declines is stock valuations have come down from their extreme levels and have now approached their long-term averages. Stocks are still not cheap, however, a lot of the greed and speculation has been removed from the market, which should bode well for better long-term returns. Overall, corporate earnings have been better than expected, however, we will be keeping a close eye on future guidance and earnings.

The Federal Reserve increased the Fed Funds rate by 50 basis points at their last meeting, and the market and the Fed are expecting they will continue to raise the rate by 50 basis points for each of the next two meetings in June and July to try and curb high inflation. All participants agreed the U.S. economy is very strong, the labor market was extremely tight, and inflation was very high, and risk remain for even higher inflation, given ongoing global supply problems, the Ukraine war, and continued coronavirus lockdowns in China. Central banks continue to face a growth-inflation trade-off. Hiking rates too much could trigger a recession, while not tightening enough risks causing prolonged higher inflation.

We will be closely watching and monitoring fiscal policies as we get closer to the mid-term elections, monetary policies, and inflation concerns. Rising energy costs are putting pressure on the consumer, making it more expensive for them to afford gas, which leaves less spending on discretionary items.

We continue to be long-term investors in this market and investors should continue to stick to an appropriate diversified long-term investment strategy. If you have any questions or want to speak to one of our Portfolio Managers, please do not hesitate to reach out to us. Thank you and have a great day.