In the early afternoon of May 20, a short unfortunate moment reached 3,810.21, enough to push up a wide range of market indices from the daytime peak set in January to a loss of nearly 21%. A 20% drop from the recent highs is a general definition of the bear market.
For long-term, high-profile investors, the news recalls memories of two years before the COVID pandemic. At that time, the index fell 35% in less than two months.
Fortunately, the May 20 lows caused a huge backlash that continued the following week. The rebound broke the S & P 500’s 7-week skid and the 8-week slump.
However, after Memorial Day’s holiday, the rally did not continue and the US stock market closed on Tuesday. Tuesday was the last trading day of May. The S & P 500 and the Dow fell 0.63% and 0.67% on the day, respectively. Both indexes ended the month flat.
High-tech-intensive NASDAQ fell 0.4% on the day, 2% at the end of the month, and 22.8% annually.
What happens next is someone’s guess. Alertness and vigilance are good tactics.
Since the beginning of 2022, the S & P and Dow have fallen in three out of five months. NASDAQ is down in 4 out of 5 months. So far, April has been the worst month for all three indicators.
COVID was the only villain in 2020, but the factors that weigh on the market in 2022 are more diverse and complex. They include:
- Continued domestic and global struggle with the pandemic.
- Worst since the 1980s, the Fed has vowed to boost prices.
- An ongoing war between Ukraine and Russia.
- Political tensions in the United States.
- Overbought market.
COVID has proven to be a wise enemy, easily mutating to new variants and boosting the number of cases worldwide. In May, China blocked many cities, especially Shanghai. Good news. Much more is now known about viruses.
Still, hospitalizations are on the rise and new demands are made to wear masks in indoor public spaces, but the number of COVID-related deaths is declining.
Nevertheless, the problem of inflation also started with COVID. This disrupted the global supply chain and took time and money to ship goods from point A to point B. It’s a hassle to restart.
Moreover, when Russia invaded Ukraine in late February, oil prices rose and the rise accelerated.
The benchmark West Texas Intermediate surged 10%. , Global benchmarks have increased by almost 13%. Both ended May at $ 115 a barrel.Of the American Automobile Association Daily fuel gauge report Shows that retail gasoline prices in the United States rose by nearly 41% in 2022.
The Fed is widely believed to start an inflating battle too late. Leaving a rate just above 0% for almost two years resulted in desperate and enthusiastic purchases of everything from furniture to cryptocurrencies.
The central bank raised it once this year and is now expected to raise rates at least twice. Lenders have pushed interest rates on fixed-rate mortgages for 30 years from 2.7% in August to about 5.1%. according to Freddie Mac, one of the country’s largest suppliers of capital to mortgage lenders.
Equally important, the Fed will begin selling huge inventories of government bonds. It will also add pressure to push up interest rates. (The Fed’s bond purchases, which began during the pandemic, put more cash into the economy.)
Meanwhile, Russia’s invasion of Ukraine has caused two problems. A humanitarian crisis in Eastern Europe as millions of Ukrainians flee elsewhere. The world’s agricultural markets have been disrupted as both Russia and Ukraine are major agricultural producers. The conflict affected the supply of wheat, sunflower seeds, and related commodities.
Results can be seen in any supermarket. Ask your newborn mother how difficult it is to find infant formula.
Political tensions could rise this fall as the United States holds midterm elections.
The 2020 interest rate cut to lift the global economy also caused speculative attacks on stocks such as housing, furniture and art, and cryptocurrencies, raising the last issue of overbought markets.
The Fed’s disclosure of rate hike plans has broken many foundations in these markets.
Wide array of May stock losers
Wal-Mart (NYSE 🙂 fell 15.9% in May. This is the stock with the weakest Dow Jones Industrial Average this month. The share of huge discount stores is 11.1% off annually.
Rival Target (NYSE 🙂 plummeted 29.2% due to very high shipping costs and high bets on wrong inventories. Amazon (NASDAQ 🙂 fell 16.7%.
Tesla (NASDAQ 🙂 fell 12.9% this month as CEO Elon Musk pursued a controversial bid to buy Twitter (NYSE 🙂 and increased skepticism he offered too much. The share of EV companies has decreased by 30% year-on-year. (Twitter decreased by 19.2% and decreased by 8.4% in 2022 due to uncertainty.)
Facebook’s parent company Meta Platforms (NASDAQ 🙂 fell only 3.4% in May. That was good news for the social media giants. Stock prices fell 10% in April and 42% in 2022. It fell by almost 50% from the peak of $ 384.33 on September 1, 2021. (The meta ticker symbol will change to META before the market opens on June 9th.)
Startups and initial public offerings have evaporated. According to Renaissance Capital, which tracks IPOs, only eight IPOs were priced in May, down from 23 in the year-ago quarter. Since the beginning of 2022, the price of this year’s IPO has been only 34, down nearly 80% from last year. One big reason: Investors are not interested in investing in companies that have little or no path to profitability.
Exchange-traded funds focused on technology also struggled. The first of these ETFs was ARK Innovation (NYSE 🙂 managed by Cathie Wood. Her mission is to investigate what she calls a destructive innovator.
The ETF’s largest holding is Tesla. There is also a major stake in the TV streaming company Roku (NASDAQ 🙂 and the crypto exchange Coinbase Global (NASDAQ :).
ARK was down 5.5% this month, down about 33% this quarter, and worse, YTD was down 54%, 67% off after peaking at $ 132.50 on June 30, 2021. ..
ARK issues reflect what happened to higher risk stocks and investments, including cryptocurrencies.
It fell 17.2% to $ 31,757 to end May. However, this was a significant improvement over the low of $ 28,158 on May 26, down 26.5% at the time. Dominant cryptocurrencies have fallen 31% annually, down 54% from their November peak.
Stock Market Winners: Not Big Tech
May wasn’t all bad. The last full trading week of the month generated the largest weekly profits on the S & P 500 and the Dow since November 2020. NASDAQ’s 8.2% profit for the week was the highest since mid-March.
The May winners were dominated by energy companies, but also included chemical producers, utilities, and information technology.
Albemarle (NYSE :), a specialty chemical manufacturer that produces lithium used in batteries, is the top share of the S & P 500, up about 35% this month. The second is Devon Energy (NYSE :), an oil and gas producer, with an increase of 28.8%. It was the leader of five oil and gas companies in the top 10 of S & P.
Oil giant Chevron (NYSE 🙂 rose 11.5% in the Dow Jones Industrial Average.
Crude oil increased by 10.8% monthly and + 48.9% annually. The US Oil Fund (NYSE :), an ETF that tracks oil prices, has also risen 10.8%, up 55% annually.
Factors pushing up oil prices include the struggle to bring production back online from a pandemic outage. In addition, many independent US oil and gas producers have worked to please investors by increasing profits at the expense of production.
Of course, the bigger problem is that the Western countries are Russia’s oil and gas.
Rebound at hand?
Many investors and experts, including CNBC’s Jim Cramer and technical analyst Larry Williams, participated in the big rebound last week, and market charts suggest a strong rebound in December as stocks bottom out. I believe it is. They claim that the economy will be stronger. The show is rare, if any, with the signs of deterioration they say.
perhaps. However, the various strong headwinds facing the market remain.
As mentioned above, there is the Fed first. They want to slowly raise interest rates to cool the hot inflation without much financial pain, but there are already signs that rising interest rates are beginning to curb home purchases.
Still, there are still COVIDs to worry about. And the unresolved conflict between Ukraine and Russia can be caught in a much larger fire.
Finally, the stock market doesn’t really show that the rebound is imminent. See the Relative Strength Index for the S & P 500, Dow and NASDAQ. The RSI measures the rate of price fluctuations (up or down). In March 2009, the market bottomed out when the RSI of each of the three indexes fell below 30. And, prior to the collapse of the market in 2008, the vibrancy of the market a year ago was well above the RSI value of 70.
The RSI value exceeded 70 in November 2021 and fell shortly after the Fed announced a more hawkish view of inflation. During the current May sellout, the index remained above 30 until May 20, when the S & P 500 appeared to be plunging into the bear market.
Old hands on the market will tell you that if you want a real rebound, you need a puncture first. Perhaps it happened on May 20th. But again, it may not be.