Market Commentary — June 20, 2022
After a relief rally on the Fed’s three-quarter percent (75 bps) interest rate increase, its most aggressive hike since 1994, stocks sold off on renewed recession fears. The S&P 500 Index suffered its worst weekly decline since March of 2020 and entered bear market territory, down 24% below its January peak.
Two other negative multiyear data points: 1) Every member of the S&P 500 was in negative territory at one point, something that hasn’t happened since at least 1996, and 2) the NYSE advance/decline ratio was the most negative it has been since 2007.
The aggressive rate action was spurred by last week’s higher-than-expected inflation print of 8.6%, but investors are concerned that the economy is less resilient to rate increases than the Fed is expecting. Already, the housing market seems to be cooling thanks to a surge in mortgage rates approaching 6%. Building permits fell 7% in May to their lowest level since last September, while housing starts sank 14.4%, the biggest drop since the onset of the pandemic.
Retail sales fell 0.3% in May, dragged down by a sharp decline in auto purchases also being impacted by higher interest rates. Finally, weekly jobless claims also came in higher than expected at 229,000 versus estimates for 210,000.
The U.S. is not the only country battling inflation and rising rates. Switzerland piled on with a surprise 50 bps increase in its borrowing costs, its first since 2007, and the Bank of England had its fifth rate hike in a row, raising rates by 25 bps. Only the Bank of Japan bucked the trend, sticking with its accommodative stance and sending the yen to a 2 year low against the U.S. dollar.
Memories of the eurozone crisis came flooding back this week, as the gap between Italian and safe-haven German government debt hit its highest level since 2014. The ECB could struggle to keep bond spreads under control while also tightening monetary policy.
Meanwhile, the crypto meltdown continues as Bitcoin dips below $20,000. The WSJ headline is The Crypto Party is Over. Last week Crypto.com laid off 5% of its workforce, and Coinbase laid off 18%. None of this bodes well for the prospects for a spot Bitcoin ETF approval. And for those familiar with the Netflix series “Inventing Anna”, she is getting into a “legit” business, launching a line of NFTs.
Hope everyone had a great Father’s Day/Juneteenth weekend. Here’s to less asset destruction and better market action ahead.
CEO and Co-Founder