Watch the CPK Market Action Report: July 2022
Markets closed out the month of June, but not before setting multiple negative records including posting the worst first half of a year since 1970 leaving every sector in the red except energy. With record high inflation and rising interest rates, what will investors need to do to weather the storm?
Watch the Market Action Report now:
CPK Wealth Market Action Report
July 2022
INTRO TAG
Markets closed out the month of June, but not before setting multiple negative records including posting the worst first half of a year since 1970 leaving every sector in the red except energy. With record high inflation and rising interest rates, what will investors need to do to weather the storm?
That action starts, NOW!
INDEX PERFORMANCE RECAP
Index performance was a complete disaster this month with the Dow Jones Industrial dropping a whopping 9.85% and the S&P 500 falling 8.78%. The Nasdaq Composite posted an eye-popping decline as well of 9.43%.
EQUITY UPDATE
Regardless of how well your accounts are performing relative to the markets, severe volatility and intense selling pressure will give everyone a little anxiety and you have good reason for it. The S&P 500 has declined 10 of the last 12 weeks. During the month, the S&P 500 suffered its worst 7 day stretch since 1928 with 90% of stocks declining at least 5 out of 7 days. As if that’s not bad enough, over the last five weeks, the S&P 500 has tied its second most volatile stretch of four 5% swings. We have not seen this since 1928.
The last six months have been brutal. Unfortunately, we are not yet at a point where we can say we are at a bottom as our “Three Keys To A Bottom” (Peak inflation/Peak Hawkishness, Chinese economic reopening and geopolitical improvement) haven’t been satisfied yet.
While fundamentals are still negative, every time the S&P 500 has fallen 15% or more in the first half of the year, it has rallied in the second half on average 24%. There is no reason this can’t happen again if we can make headway on the “Three Keys To A Bottom.”
BOND UPDATE
Bond yields spiked mid-month with the 10 yr topping out near 3.5% before retracing back to 2.972% where it closed out the month. The 5yr and 30yr yields followed the same roadmap closing out at 3% and 3.119% respectively.
By month end, the 10s-2s spread remained in the low single digits (5 basis points) as again the entire curve moved lower on the prospects of a potential peak in inflation and moderation of economic growth. If that continues, we should see a continued drop in the yield curve as the market prices in fewer rate hikes than initially feared.
COMMODITY UPDATE
Increased concerns over demand and fears of a recession led to a 13% mid-month drop in light sweet crude prices to just under $104. The black gold was able to catch a bid higher and eventually close 5.54% lower for the month at $106.17. If we see prices break below the recent low of $104.03, the trend will shift from bullish to neutral.
Copper has plummeted nearly 20% from its high in early June and closed out the month down 13.88% at $3.685. Why has it been dropping like a brick? It’s the same reason as everything else, the market is becoming increasingly concerned about the slowing global economy and the rising potential of a recession. It is important to note, the price of copper is generally a good bellwether for the state of the overall economy. Based on current price action, traders are not yet pricing in peak recession fears indicating they will remain a major headwind for stocks and other risk assets.
Much like the rest of the market, gold too found itself losing its battle with inflation declining 1.2% to $1810.70 an ounce. It won’t take much to shift to a bearish outlook for the yellow brick as the closing low for the year of $1791/oz will now be the new line in the sand.
CURRENCY UPDATE
The dollar rose sharply during the first half of the month from $102 to $105.50. From there, the greenback stayed in a range of $104 to $105 before closing up for the month at $104.79.
If the economy is materially losing momentum, it is unlikely the dollar will move through the 105-106 level. Unfortunately, this will not provide any assistance to corporate earnings. However, it could prevent a larger headwind.
ECONOMIC UPDATE
At the end of the month, the Core PCE Price Index which historically has been the Fed’s go to measure for inflation showed signs of peaking on a monthly basis as it edged up .3% in May versus the .4% that was expected. Annually, the Core PCE was also lower at 4.7% versus April’s reading of 4.9%. This is good news for markets as it shows inflation might be peaking as a result of the Fed’s tightening policy. However, it appears this has all been at the expense of the consumer as Personal Consumption Expenditures slowed dramatically in May to just .2% versus an expected .6%.
There is growing evidence that inflation has peaked and that the economy is slowing. Both are good news so long as the slowing isn’t too dramatic and risks the potential of stagflation.
THE WRAP
To confirm my comments from last month, stats are starting to indicate inflation may have peaked and there is still hope that the Fed can engineer a soft landing and avoid stagflation or a recession. The fact is, we are in a bear market right now and any sign of life seems to get taken out behind the woodshed and shot. The silver lining in this if there is one is the level of selling pressure. Such one-sided activity usually suggests a very oversold market. Unfortunately, that has not proven to be the case just yet. However, based on the price action and participation during the last few weeks, moods should be improving in the coming weeks. While it’s not impossible, research tells us that a severe reversal to lower lows would be very rare here. Our next round of corporate earnings will be very telling as to where this market will go next. Rest assured, we will have out finger on the pulse and take appropriate action as needed.
CPK FOCUS
For the month of July, the cash allocation in our equity models remains at 40% due to the model’s more aggressive nature. As a reminder, this could be increasing if we see signs of further deterioration. Again, I am proud to say that this approach has kept our performance ahead of all the major index’s year to date.
While our broad focus remains on Commodities and Domestic Equities, it is important to note that Cash moved into 2nd place during the month moving Domestic Equities into the third position. While this would generally be an indicator to move to a partial cash position, I want to remind everyone that our cash position of 40% has been in place all year.
For Commodities, our focus is on Energy and Agriculture.
As for Domestic Equities, our focus is on Mid Cap Value, Small Cap Value and Mid-Cap Blend with an emphasis on Energy, Consumer Non-Cyclical, Financials, Utilities & Industrial sectors.
CPK DISCLAIMER
As a reminder, my current allocation is not a recommendation. Regardless of what happens next, investors like you need to have a simple and yet solid financial plan that reduces RISKS, COSTS and TAXES while securing the necessary income you need to maintain your lifestyle throughout retirement.
If you don’t have a plan OR you’re not comfortable with the plan you have, call me today to get pointed in the right direction.
I’m Chad Kunc and that puts a wrap on the July 2022 Market Action Report. Thanks for joining me. It’s time for me to get back to the markets.
And that action starts, NOW!