Week Ending 6/17/2022

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MARKET RECAP

  • The bear market is now in full swing, with most expecting more downside to come. The S&P 500 dropped by 5.8% this week, the biggest decline since the pandemic hit. The S&P has dropped 10 of the last 11 weeks. Wilshire Associates estimates the market cap of US equities is down by 12.5 trillion this year. The crypto market was even worse, bitcoin fell by 30% and there are signs that some crypto lending platforms are freezing up. Celsius Networks put a pause on all withdrawals.
  • The Fed raised rates by 0.75% and said they expect the economy to slow significantly. It was the biggest increase since 1994. The Fed is now expected to raise rates by another 1.75 percentage points over the remainder of this year, to about 3.75%.
  • Much higher interest rates increase the chances of a deeper recession significantly. P/E ratios will decline as the interest rates increase, and to make matters worse, the “E” in the P/E will fall due to the recession. And all of this is further complicated by the war in Ukraine, which has reduced energy and food supplies, and by broken supply chains, which have been damaged further by tight Covid restrictions in China. Almost every analyst out there predicts more downside to come. At least over the next year or so.
  • Models at Bloomberg Economics place the chance of a recession by 2024 at 72%.
  • Meanwhile, commodity prices fell this week. Oil was down by 8.98% this week and energy companies fell hard. The XLP was down by 17.16% for the week and is 20% off its high. Cooper was off by 6.6% for the week. Residential investment is down by about 20% for the quarter.
  • $2 trillion of cyptocurrency value has been erased since November. Bitcoin is off 70% from its high.
  • According to Mark Hulpert, if “you bought stocks on the day the S&P 500 closes below the 20% loss threshold.. on average you would have done very well…and you wouldn’t have had to wait that long to do so. Over the 12 months following your buys, your average total return would have been 22.7%. Click for the article.
  • Retail spending fell in May by a seasonally adjusted 0.3% compared to April. It was the first decline in over a year. Housing and auto sales were both down. The savings rate was at its lowest level in 14 years, indicating that consumers are dipping into savings to offset inflation.

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