AMERIPRISE FINANCIAL, INC.
It appears investors just can't catch a break. The Dow Jones Industrials Average is currently suffering its longest weekly losing streak since July 2001, while the S&P 500® Index is on its worst consecutive weekly slide since June 2011. Last week, the Dow finished lower for the seventh straight week, declining by 2.1%. The S&P 500 Index ended last week down 2.4% for its sixth consecutive week of losses. The tech-heavy NASDAQ Composite also ended last week with losses, dropping 2.8%, for its sixth straight week in the red and its worst losing streak in nearly ten years.
Stock prices continue to face pressure from rising interest rates, near record-high inflation, and most recently, growing fears that the U.S. economy is headed for a material slowdown. Real estate, financials, technology, and consumer discretionary lost more than 3.0% last week. Consumer staples was the only S&P 500 sector to finish the week higher. In addition, the 10-year U.S. Treasury yield took a break from its tear higher, ending the week at 2.93%. West Texas Intermediate crude finished at $110.38 per barrel, and Gold closed at $1,808.40 per ounce. During the week, Bitcoin fell below $26,000, its lowest level since December 2020, and as the digital asset trades more akin to a high-risk growth stock than an inflation hedge.
Last Week's CPI Report Did Little to Calm Investors' Nerves
Unfortunately, last week's consumer and producer inflation reports did little to change the market's negative tone. Headline April CPI came in at +8.3% year over year (y/y), cooler than the +8.5% record pace recorded in March but hotter than the +8.1% expected. Additionally, core CPI inflation (ex. food and energy) rose +0.6% month over month (m/m) in April, twice as much as the rate in March and hotter than the +0.4% expected. On the producer side, prices in April showed signs of moderation yet remained at very elevated levels.
Notably, while consumer and producer prices are likely peaking in the U.S. (a longer-term positive for growth), the evidence of the peak may not look linear over the coming months. In our view, the year-over-year headline and core inflation rates should moderate as we move through the year. Still, investors should expect the data to look more mixed by segment, with the pace of moderation not equal in all areas measured within the Consumer Price Index (CPI) and Producer Price Index (PPI).
Bottom line: Inflation data may look messy for a period, with prices remaining elevated in some areas (ex., services, food, and energy), while the pace of price gains moderate in other areas (ex. goods). Further, additional reports measuring wage inflation are likely to influence investors over the coming months, as labor costs (inside a tight job market) play a significant role in determining the corporate outlook and impact on profit margins.
Last Thursday, Fed Chair Jerome Powell said the Federal Reserve couldn't guarantee a soft landing. Mr. Powell noted that entrenched inflation at such high levels would be the worst scenario for the economy. The Chair added it would be "quite challenging" for the Fed to engineer a soft landing in the process, considering some dynamics (e.g., supply chain disruptions) are out of its control. As a result, investors are becoming more concerned that in the Fed's desire to curb inflation pressures and aggressively raise interest rates, the central bank could overtighten policy and risk sending the economy into a recession. By Friday, Fed fund futures had begun to dial back some of the most aggressive assumptions for rate hikes this year, recognizing that if more significant headwinds for the U.S. economy develop in the back half of the year, the Fed may be forced to slow rate hikes.
The S&P 500 Down More than 15% Since the Start of the Year as Investors Face Multiple Headwinds
From a stock perspective, the S&P 500 finished last week roughly 16.5% lower than its January high. Though the broad-based U.S. stock benchmark has thus far avoided falling into a bear market (defined as a 20% or more decline from a recent high), several broad indices have already felt the bear's wrath. The NASDAQ and Russell 2000 Index are each off their all-time highs by more than 27%. Communication Services, Consumer Discretionary, and Information Technology also sit firmly in a bear market today. It's also worth mentioning that many stocks within the S&P 500 are down 20% or more from their highs, so while the broader average has avoided a bear market so far, that's certainly not been the case for many of its constituents. Equity prices have spent most of this year resetting to the realities of higher rates, elevated inflation, and slowing growth.
With that said, the market may need to see more capitulation, which could send stocks even lower over the very near term. Fed-tightening, persistent inflation, China COVID-19 lockdowns, the Ukraine war, and a global growth slowdown are ongoing stock headwinds. With investor sentiment at some of its weakest levels in decades and traders moving from a "buy-the-dip" strategy to "sell-the-rip," longer-term investors should expect a volatile environment ahead. In such environments, stocks can overcorrect to the downside, similar to how they overshot to the upside after hitting the pandemic lows in March 2020.
Long-term Buying Opportunities Being Created as Several Parts of the Market May Be Oversold
However, more areas of the market are becoming extremely oversold today. Sentiment is likely too pessimistic given the still strong corporate backdrop. Expectations for Fed-tightening look too aggressive, in our view. Shanghai and Beijing won't stay locked down forever. And the Ukraine war appears contained, while global growth should remain positive in 2022. At some point, stock prices will bottom, and investors will be able to envision an environment where equities may rise in the future. We believe long-term buying opportunities are being created every day, and the further stocks sink. Investors should be putting their shopping lists together now and mapping out a strategy to act. Your Ameriprise advisor is here to help in this department.
Looking ahead to this week, the economic calendar shifts from inflation to growth. April retail sales will be a notable highlight, as sales are expected to increase over March levels. However, gasoline sales and the continued unwinding of stimulus/child tax credit spending could provide some spin on the ball when deciphering consumer readthroughs. A batch of April home data, including building permits, housing starts, and existing home sales, should provide additional insight into consumer reactions to higher interest rates. According to the St. Louis Federal Reserve, the median sales price of a new single-family home stood at $436,700 at the end of March. Interestingly, a 30-year fixed-rate conventional mortgage for that new home costs roughly $670 a month more today than one year ago.
In addition, the Q1 earnings season essentially comes to a close this week, with 15 S&P 500 companies reporting results, including several big-box retailers. With roughly 91% of S&P 500 Q1'22 earnings reports complete, the blended earnings per share (EPS) growth rate is higher by +9.1% y/y on sales growth of +13.4%. Although a record number of companies cited the term "inflation" on their earnings calls, Q1 profits came in well ahead of analyst estimates, indicating customers were willing to absorb higher prices. But will that still be the case when the Q2 earnings season rolls around in July?
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.
A 10-year Treasury note is a debt obligation issued by the United States government that matures in 10 years. The 10-year yield is typically used as a proxy for mortgage rates, and other measures.
The fund's investments may not keep pace with inflation, which may result in losses.
A rise in interest rates may result in a price decline of fixed-income instruments held by the fund, negatively impacting its performance and NAV. Falling rates may result in the fund investing in lower yielding debt instruments, lowering the fund's income and yield. These risks may be heightened for longer maturity and duration securities.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
The Standard & Poor's 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees. It is not possible to invest directly in an index.
The NASDAQ composite index measures all NASDAQ domestic and international based common type stocks listed on the Nasdaq Stock Market.
The Dow Jones Industrial Average (DJIA) is an index containing stocks of 30 Large-Cap corporations in the United States. The index is owned and maintained by Dow Jones & Company.
Definitions of individual indices and sectors mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
Stock prices continue to face pressure from rising interest rates, near record-high inflation, and most recently, growing fears that the U.S. economy is headed for a material slowdown. Real estate, financials, technology, and consumer discretionary lost more than 3.0% last week. Consumer staples was the only S&P 500 sector to finish the week higher. In addition, the 10-year U.S. Treasury yield took a break from its tear higher, ending the week at 2.93%. West Texas Intermediate crude finished at $110.38 per barrel, and Gold closed at $1,808.40 per ounce. During the week, Bitcoin fell below $26,000, its lowest level since December 2020, and as the digital asset trades more akin to a high-risk growth stock than an inflation hedge.
Last Week's CPI Report Did Little to Calm Investors' Nerves
Unfortunately, last week's consumer and producer inflation reports did little to change the market's negative tone. Headline April CPI came in at +8.3% year over year (y/y), cooler than the +8.5% record pace recorded in March but hotter than the +8.1% expected. Additionally, core CPI inflation (ex. food and energy) rose +0.6% month over month (m/m) in April, twice as much as the rate in March and hotter than the +0.4% expected. On the producer side, prices in April showed signs of moderation yet remained at very elevated levels.
Notably, while consumer and producer prices are likely peaking in the U.S. (a longer-term positive for growth), the evidence of the peak may not look linear over the coming months. In our view, the year-over-year headline and core inflation rates should moderate as we move through the year. Still, investors should expect the data to look more mixed by segment, with the pace of moderation not equal in all areas measured within the Consumer Price Index (CPI) and Producer Price Index (PPI).
Bottom line: Inflation data may look messy for a period, with prices remaining elevated in some areas (ex., services, food, and energy), while the pace of price gains moderate in other areas (ex. goods). Further, additional reports measuring wage inflation are likely to influence investors over the coming months, as labor costs (inside a tight job market) play a significant role in determining the corporate outlook and impact on profit margins.
Last Thursday, Fed Chair Jerome Powell said the Federal Reserve couldn't guarantee a soft landing. Mr. Powell noted that entrenched inflation at such high levels would be the worst scenario for the economy. The Chair added it would be "quite challenging" for the Fed to engineer a soft landing in the process, considering some dynamics (e.g., supply chain disruptions) are out of its control. As a result, investors are becoming more concerned that in the Fed's desire to curb inflation pressures and aggressively raise interest rates, the central bank could overtighten policy and risk sending the economy into a recession. By Friday, Fed fund futures had begun to dial back some of the most aggressive assumptions for rate hikes this year, recognizing that if more significant headwinds for the U.S. economy develop in the back half of the year, the Fed may be forced to slow rate hikes.
The S&P 500 Down More than 15% Since the Start of the Year as Investors Face Multiple Headwinds
From a stock perspective, the S&P 500 finished last week roughly 16.5% lower than its January high. Though the broad-based U.S. stock benchmark has thus far avoided falling into a bear market (defined as a 20% or more decline from a recent high), several broad indices have already felt the bear's wrath. The NASDAQ and Russell 2000 Index are each off their all-time highs by more than 27%. Communication Services, Consumer Discretionary, and Information Technology also sit firmly in a bear market today. It's also worth mentioning that many stocks within the S&P 500 are down 20% or more from their highs, so while the broader average has avoided a bear market so far, that's certainly not been the case for many of its constituents. Equity prices have spent most of this year resetting to the realities of higher rates, elevated inflation, and slowing growth.
With that said, the market may need to see more capitulation, which could send stocks even lower over the very near term. Fed-tightening, persistent inflation, China COVID-19 lockdowns, the Ukraine war, and a global growth slowdown are ongoing stock headwinds. With investor sentiment at some of its weakest levels in decades and traders moving from a "buy-the-dip" strategy to "sell-the-rip," longer-term investors should expect a volatile environment ahead. In such environments, stocks can overcorrect to the downside, similar to how they overshot to the upside after hitting the pandemic lows in March 2020.
Long-term Buying Opportunities Being Created as Several Parts of the Market May Be Oversold
However, more areas of the market are becoming extremely oversold today. Sentiment is likely too pessimistic given the still strong corporate backdrop. Expectations for Fed-tightening look too aggressive, in our view. Shanghai and Beijing won't stay locked down forever. And the Ukraine war appears contained, while global growth should remain positive in 2022. At some point, stock prices will bottom, and investors will be able to envision an environment where equities may rise in the future. We believe long-term buying opportunities are being created every day, and the further stocks sink. Investors should be putting their shopping lists together now and mapping out a strategy to act. Your Ameriprise advisor is here to help in this department.
Looking ahead to this week, the economic calendar shifts from inflation to growth. April retail sales will be a notable highlight, as sales are expected to increase over March levels. However, gasoline sales and the continued unwinding of stimulus/child tax credit spending could provide some spin on the ball when deciphering consumer readthroughs. A batch of April home data, including building permits, housing starts, and existing home sales, should provide additional insight into consumer reactions to higher interest rates. According to the St. Louis Federal Reserve, the median sales price of a new single-family home stood at $436,700 at the end of March. Interestingly, a 30-year fixed-rate conventional mortgage for that new home costs roughly $670 a month more today than one year ago.
In addition, the Q1 earnings season essentially comes to a close this week, with 15 S&P 500 companies reporting results, including several big-box retailers. With roughly 91% of S&P 500 Q1'22 earnings reports complete, the blended earnings per share (EPS) growth rate is higher by +9.1% y/y on sales growth of +13.4%. Although a record number of companies cited the term "inflation" on their earnings calls, Q1 profits came in well ahead of analyst estimates, indicating customers were willing to absorb higher prices. But will that still be the case when the Q2 earnings season rolls around in July?
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.
A 10-year Treasury note is a debt obligation issued by the United States government that matures in 10 years. The 10-year yield is typically used as a proxy for mortgage rates, and other measures.
The fund's investments may not keep pace with inflation, which may result in losses.
A rise in interest rates may result in a price decline of fixed-income instruments held by the fund, negatively impacting its performance and NAV. Falling rates may result in the fund investing in lower yielding debt instruments, lowering the fund's income and yield. These risks may be heightened for longer maturity and duration securities.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
The Standard & Poor's 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees. It is not possible to invest directly in an index.
The NASDAQ composite index measures all NASDAQ domestic and international based common type stocks listed on the Nasdaq Stock Market.
The Dow Jones Industrial Average (DJIA) is an index containing stocks of 30 Large-Cap corporations in the United States. The index is owned and maintained by Dow Jones & Company.
Definitions of individual indices and sectors mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
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Ameriprise Financial Inc. published this content on 16 May 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 May 2022 19:49:09 UTC.
