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Despite media headlines of layoffs and rescinded job offers the US job market remains strong.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.
3. Inflation
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.
4. Housing
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).
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Disclosures
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
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.