Market Perspective – Still neutral, not sellers at these levels

Market Perspective

May 9, 2022

Highlights

  • A key view of ours is that the debate about whether the Fed is going too fast or too slow would inject volatility into the markets. A Fed policy mistake was one of the main risks to the market. We saw a micro-cosm of this debate over the past week.

  • We are seeing global equity markets’ valuations reprice relative to the “risk-free rate” as proxied by U.S. Treasuries. This is important.

  • Investors should realize that fear and greed can often change places quickly, and at least markets are now better reflecting some of the known uncertainties.

  • We downgraded our equity view in early April at higher levels and we remain neutral.

  • We would not be equity sellers at these levels for investors that are aligned with their longer-term allocation targets.

What happened

After the S&P 500 gained roughly 3.0% on Wednesday following a more dovish press conference from Federal Reserve (Fed) Chairman Powell, the best daily gain since May 2020, stocks sharply reversed course, dropping 3.5% on Thursday. Markets have extended their losses since then, despite Friday’s solid employment report.

Along with the ongoing global growth concerns and geopolitical issues, the continued push higher in interest rates, which has seen the 10-year climb from 2.91% on Wednesday to hit 3.20% Monday morning, is weighing on markets. Growth and technology stocks are among the areas hit the hardest.

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