Equity indices have sharply declined from their post-COVID highs and economic growth optimism is waning. We recap the market’s path since COVID and highlight five economic data points below that encompass this volatility, and how they have changed since the beginning of 2020.
Net-net, while equity markets have sold off sharply and inflation remains high, the overall economy appears strong with consumer, housing, employment, and manufacturing activity all indicating an expansionary environment.
1. S&P 500 Performance
After a staggering 100%+ rally off its COVID lows the S&P 500 is in bear market territory and declining toward its pre-COVID level. That said, for investors that invested before, or during the pandemic, returns remain positive.
2. Employment Trends
Despite media headlines of layoffs and rescinded job offers the US job market remains strong. Monthly net new jobs are positive, unemployment is holding at its post-COVID low, and jobless claims are back near pre-COVID levels.
Inflation roared following COVID lockdowns and remains the biggest drag on the economy. The Fed is aggressively raising rates to cool the economy and combat it, and there are signs inflation may have peaked in 2Q.
Home prices moved sharply higher following COVID as demand for single family housing accelerated. While the housing market appears to be stabilizing as mortgage rates rise home price gains are holding.
5. Consumer Activity
Robust consumer spending on goods highlighted the pandemic period. Elevated levels of consumer spending continue, but with the global economy spending has shifted back to services (See our 2022 Midyear Recap for more on consumer spending trends).
6. Manufacturing Activity
The shift in consumer spending from goods to services has weighed on manufacturing activity. However overall manufacturing activity remains strong, with the ISM Manufacturing PMI still coming in above 50 (which indicates an expansionary environment).
This commentary reflects the personal opinions, viewpoints and analyses of the author providing such comments, and should not be regarded as a description of advisory services provided by Defiant Capital Group or performance returns of any Defiant Capital Group client. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Defiant Capital Group manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary.
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A word on risk
All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. This report should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.