Week of May 31, 2022

The U.S. equity markets are coming off one of their best weekly gains since November 2020.  The Dow gained 6.2% for the week, ending an eight-week losing streak.  The S&P 500 and NASDAQ also posted solid gains of 6.5% and 6.8%, respectively, after seven consecutive weeks of losses.  Strong earnings from the retail sector, as well as an inflation report that showed prices could be easing, lifted investor sentiment.

Unfortunately, it is not widely believed that last week’s gains mark the end of the recent correction.  “A week of positive developments is not sufficient to call an end to recent volatility,” said Mark Haefele, the chief investment officer at UBS Global Wealth Management.  Haefele pointed to Wall Street’s so-called fear gauge, the CBOE Volatility Index, or VIX, which closed below 26 last Friday from a peak of 35 earlier in May.

Adding to this sentiment, “There’s no V-shaped bottom here,” Michael Antonelli, managing director and market strategist at Baird told Yahoo Finance Live on Friday.  “V-shaped bottoms are completely comprised of the Fed getting really super friendly, putting a tailwind behind the market, or some sort of fiscal impulse,” Antonelli said.  “Neither of those are happening.”

Investors are still worried about whether the Federal Reserve can control inflation that is running at a four-decade high without tipping the economy into recession.  With 1Q2022 gross domestic product (GDP) being revised downward to -1.5%, the U.S. economy will be in a technical recession should 2Q GDP also come in negative.  Many economists agree that should the economy fall into recession this year, it will not be necessarily deep or last very long.