Market Update: May 13, 2022

Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.

 

Volatility continues to grip the market as concerns about interest rates, inflation, and commodity pricing are high. Currently, the S&P 500 is down 17.8% from all-time highs and we are currently in the midst of a 30 day selling trend beginning at the end of March.

In the news this week, Elon Musk elected to put is Twitter acquisition on hold following newly found details on fake twitter accounts. The Crypto markets are in a bit of turmoil following the collapse of popular stable coin TerraUSD. And inflation finally dipped a bit in April but at a lesser pace than expected.

Last week, we talked a bit about the goal of the Federal Reserve to reduce inflation, possibly causing a recession in the process. Since this particular scenario is dependent upon inflationary data, I figured I’d do a deeper dive of that inflation reading from earlier this week.

Here is a look at the CPI year-over-year change mentioned earlier. The spike since the April 2020 has been dramatic and you can see the ever so slightly tick down from the April 2022 reading. This is by no means a trend but many economists believe this is the beginning of the disinflationary cycle.

The primary causes for the reversal were a slowdown in price growth for all items less food and energy as well as all commodities less food and energy. Energy and gasoline prices did ebb very slightly but from incredibly high levels.

Looking at he Stick and Flexible CPI dynamic, we can see the primary driver of the disinflation was from flexible CPI, shown in green here. As a reminder, flexible CPI includes goods from highly cyclical industries that are more volatile in price increases and decreases. Sticky CPI includes goods from stable industries. Typically when sticky CPI increases, those prices do not fall. Zooming out, we can see just how dramatic that flexible CPI spike was. Thus far, sticky CPI has yet to disinflate indicating that the reversal trend in inflation is very likely only the beginning.

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Sources:

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved May 13, 2022, from FactSet Database.

2.FactSet Research Systems. (n.d.). US Government Yield Curve (Markets). Retrieved May 6, 2022, from FactSet Database.

3.US Bureau of Labor Statistics. 12-month percentage change, Consumer Price Index, selected categories, not seasonally adjusted (past 20 years). Updated May 11, 2022. Retrieved from https://www.bls.gov/cpi/

4.Federal Reserve Bank of Atlanta. Inflation Projects: Stick-Price CPI. Updated May 11, 2022. Retrieved from https://www.atlantafed.org/research/inflationproject/stickyprice

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