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.
This was a particularly nasty week that culminated in a 4% sell-off on Tuesday May 17th. As of this morning, this bear market that began in January is down 18.5% for the S&P.
In the news this week, the market is trading like a recession is imminent with indiscriminate selling that has now spread beyond the high volatility tech space. China’s central bank cut its borrowing rate as growth continues to fall. And Target and Walmart earnings calls highlighted inflationary pain felt in the US consumer. Both companies mentioned a change in consumer behavior due to high prices.
The 2022 selloff has largely been contained to high beta tech and discretionary stocks until this week when the contagion spread to staples. Since November of 2021, investors have elected to overweight protectionary staples in lieu of higher growth discretionary stocks. That trend reversed this week and may indicate a reversal of the selling pressure on discretionary stocks as well as high valuation staples coming back down to Earth or some combination of the two. While overall selling continues, this bear market will likely not find a bottom until discretionary stocks show continuous relative strength.
The AAII Bullish sentiment index is a survey from investors on their feelings on the state of the market. This index is considered a contrarian indicator. The index tends to peak right before market weakness and trough right before market rallies. Currently, the sentiment index is near all-time lows which may indicate that we are at peak bearishness and may be near the bottom.
And we got more good news on the economy this week. The leading economic index, a composite of several different leading economic indicators, has reached a new all-time high. Typically, this index falls right before serious recessions and this index is not showing negative growth indicating the economy remains fairly strong despite the fact that the market is trading like it’s weak.
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1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved May 20, 2022, from FactSet Database.
2.FactSet Research Systems. (n.d.). Equal weight staples relative to equal weight discretionary (Interactive Charts)). Retrieved May 20, 2022, from FactSet Database.
3.American Association of Individual Investors. Sentiment Survey Historical Data. Updated May 18, 2022. Retrieved from https://www.aaii.com/sentimentsurvey/sent_results
4.The Conference Board. The Leading Economic Index for US. Updated May 19, 2022. Retrieved from https://www.conference-board.org/topics/us-leading-indicators
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