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.
The trend higher continues this week as the S&P 500 breaks out of the sideways trading pattern established in May. Currently the market is up about 6% from the lows.
In the news this week, the labor market continues to strengthen as 390,000 new jobs are added in the month of May bringing the unemployment rate down to 3.6%. Facebook Chief Operating Officer Sheryl Sandberg unexpectedly retires from parent company Meta. And the Federal Reserve has begun balance sheet reduction practices by allowing bonds to mature without further reinvestment.
I wanted to put the market actions over the last 5 months into perspective a little bit. Since the bottom of the pandemic in 2020, the S&P 500 is up about 85%. This follows a 401% rally out of the Global Financial Crisis bottom. The actions since the beginning of 2022 have so far culminated in a 19% decline. But the bull-market run that began in 2008 has been long and produced significant returns.
The 19% decline coupled with strong earnings growth bring the valuation of the S&P 500 back down into average territory. While valuations, as measured by the price per dollar of earnings (or forward P/E), are much more inline with the historical average, they’re certainly not cheap by the standards set between 2008 and 2013. However, we are now far from peak overvaluations set in 2021 and during the Dotcom bubble.
And finally, while the 19% decline has been uncomfortable, it’s really not that far from the average intra-year decline. Since 1980, that average is about 14% which puts the 2022 decline just slightly above mean. Despite this 14% downside risk, 32 of the last 42 years have still resulted in a positive annual return.
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1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved June 3, 2022, from FactSet Database.
2.JP Morgan Asset Management. JP Morgan Guide to the Markets. Slides 4, 5, & 16. Updated April 30, 2022. Retrieved from https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
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