Markets & Economic Update for May 2022: Converging Events Create Challenges for Investors

David Lundgren, CFA®
May 4, 2022

Each month, senior leaders of Hancock Whitney's Asset Management team discuss the latest news and events that impact markets and the economy.

 

Key takeaways this month:

  • Another difficult, volatile month for stocks as unfortunate developments in Russia’s war against Ukraine, the surprising decline in GDP in the first quarter, and no let-up in inflationary pressures fueled negative sentiment. It was the worst monthly result since the beginning of the pandemic economic shut-downs in March 2020.

  • Bonds also struggled in April primarily driven by rising expectations for ever more aggressive Fed rate hike guidance out of the upcoming FOMC meeting on May 3rd and 4th. The month-end slide in bond prices was enough to drive down April index returns below March’s returns.

  • The Federal Reserve policy committee is expected to raise their target rate by +50 basis points at their May meeting and then follow with another two or more consecutive +50 basis point rate hikes in order to get to a neutral or higher rate by the end of 2022. In addition, Chairman Powell will likely provide a timeline following the meeting on the imminent start of Fed balance sheet roll off, often referred to as quantitative tightening.

  • The 1Q22 Real GDP report (preliminary read) came in below expectations with a Q/Q growth rate of -1.4% well short of the expected 1.0%. The period’s deceleration in economic output can largely be attributed to a large decrease in net exports. While the headline number disappointed, there is still some encouraging economic data indicating that the U.S. economy remains relatively healthy.

  • While the Russia / Ukraine situation continues, markets have shifted focus to U.S. policy makers and discussions around legislation to help ease inflationary pressures. While negotiations are ongoing, passage of bipartisan legislation is unlikely with the midterm elections quickly approaching.

 

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