The changing landscape of the equity markets
Meaningful changes in the relative performance of various sectors of the equity market have developed over the past year, and they seem poised to persist.
JUNE 2022 MARKET UPDATE
Thrivent Asset Management Contributors to this report: Steve Lowe, CFA, Chief Investment Strategist; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Model Portfolio Manager
The U.S. economy added 390,000 new jobs in May, as employment growth continued to be one of the few bright spots in the U.S. economy. The unemployment rate remained at a healthy 3.6%, according to the Department of Labor employment report on June 3.
But rising prices for gasoline and consumer goods continued to be a drag on the economy. The average price at the pump rose by 11.47% in May, from $4.21 per gallon at the end of April to $4.67 at the end of May. Rising food prices also continued to squeeze consumers, with prices up 10.8% year-over-year through the end of April, according to the U.S. Bureau of Labor Statistics.
The Consumer Price Index (CPI), which is a common measure of inflation, rose 0.3% in April – and 8.3% over the previous 12 months. But for all items except food and energy, the CPI was up 6.2% for the most recent 12-month period. Rising vehicle prices have also contributed to the inflation spike, with new vehicle prices up 13.2% over the previous 12 months and used vehicle prices up 22.7%.
After a dismal start to the year, the stock market leveled off in May, with the S&P 500® Index rising 0.01% for the month – and 0.18% including dividends. But the NASDAQ continued to slump, dropping 2.05% in May. For the year, the S&P 500 was down 13.30% through the end of May (12.76% including dividends), while the NASDAQ was down 22.78%.
Manufacturing operations have continued to report strong activity, according to the Institute for Supply Management (ISM). In its June 1 report, ISM said overall manufacturing growth has continued for 24 consecutive months, with 15 of the 18 industries it tracks reporting growth for the month, while only one industry – furniture and related products – reporting a decline. According to the report, hiring issues improved and demand for products remained strong, but supply issues continued to constrain production expansion.
Despite continuing concerns over inflation, the war in Ukraine, and the accelerating monetary tightening policy of the Federal Reserve (Fed), the S&P 500 Index managed a 0.01% gain in May, from 4,131.93 at the end of April to 4,132.15 at the May close. The total return, including dividends, was up 0.18% for the month but down 12.76% through the first five months of the year. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)
The NASDAQ Index continued to drop in May, down 2.05% for the month, from 12,334.64 at the end of April to 12,081.39 at the May close. Year-to-date, the NASDAQ was down 22.78%. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)
Retail sales were up 0.9% in April, as consumers continued to increase spending as the price of goods increased due to inflation, according to the Department of Commerce retail sales report issued May 17. Compared with the same period a year earlier, retail sales were up 8.2% in April.
Building material sales were down 0.1% for the month of April but up 1.7% compared with April 2021, while auto sales were up 2.2% for the month but down 2.4% from a year earlier; department store sales were up 1.1% for the month and 2.9% from a year earlier.
Non-store retailers (primarily online) were up 2.1% for the month and 12.7% from a year earlier. Sales for food services and drinking places moved up 2.0% in April and up 19.8% from a year earlier, with more Americans returning to bars and restaurants as Covid-19 restrictions eased.
Employers added 390,000 new jobs in May, according to the Department of Labor. That followed solid job growth of 436,000 new jobs in April and 398,000 new jobs in March. The unemployment rate remained the same at 3.6%, as more people seeking work entered the job market.
Employment growth was solid across multiple industries, led by professional and business services, transportation and warehousing, construction, and state government. Total number of unemployed persons remained little changed at 5.7 million.
Average hourly earnings for all employees on private nonfarm payrolls was up $0.10 per hour in May at $31.95 per hour. Over the past 12 months, average earnings have increased by 5.2%.
The Energy sector of the S&P 500 jumped 15.77% in May, followed by Utilities, up 4.32%, to lead all sectors for the month. Six of the 11 sectors were in positive territory while the other five declined. Real estate fared the worst, down 5.02%, followed by Consumer Discretionary, down 4.85%, and Consumer Staples, down 4.61%.
The chart below shows the results of the 11 sectors for the past month and year-to-date:
Bond yields stabilized in May after a sharp rise through the first few months of the year in response to rate hikes by the Fed. The yield on 10-year U.S. Treasuries dropped 0.05% for the month, from 2.89% at the end of April to 2.84% at the May close. Interest rates may rise further throughout the year, with the Fed expected to make multiple rate hikes in an effort to tame inflation.
Oil prices climbed higher in May due to the embargo on Russian oil and increased demand due to a rebound in global travel as businesses recovered from the pandemic slowdown. West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, jumped 9.53% in May, from $104.69 per barrel at the end of April to $114.67 at the May close. Oil prices have jumped 52.47% since the start of the year.
International equities were little changed in May despite the war in Ukraine and rising inflation throughout Europe and Asia. The MSCI EAFE Index, which tracks developed-economy stocks in Europe, Asia, and Australia, edged up 0.21% for the month, from 2,033.70 at the end of April to 2,037.87 at the May close. For the year, the index was down 12.76%.
All information and representations herein are as of 06/07/2022, unless otherwise noted.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.
Past performance is not necessarily indicative of future results.