News

We hit a milestone just recently, although it’s certainly not one we wanted to hit. The S&P 500 stock index is now officially in a bear market, down more than 20 percent from its highs. The Nasdaq, of course, has been in a bear market for some time. It is down more than 20 percent, but that is primarily technology, which is notoriously volatile. The S&P 500, which includes the largest and best-known companies across all industries, is a better indicator of market stress overall. The fact that it has moved into the bear phase signifies significant market and economic stress.

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My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!

Markets sold off in early and mid May due to concerns of slowing economic growth before a late-month rally brought them close to even. The month-end rally led to mixed results for the three major U.S. equity indices. The S&P 500 gained 0.18 percent while the Dow Jones Industrial Average managed to notch a 0.33 percent return. The Nasdaq Composite was unable to rebound to positive territory by the end of the month, with the technology-heavy index down 1.93 percent in May. The market turbulence during the month was a reminder that risks remain for markets, and they should be closely monitored.

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There were several important economic data releases last week, with a focus on the May Consumer Price Index report. Consumer prices increased more than expected during the month, as inflation continues to affect all areas of the economy. This will be another busy week of updates, with reports scheduled on producer prices, retail sales, the Fed’s June meeting, and new home construction.

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As we embark on the summer driving season, the average price of regular gasoline in the U.S. has reached an all-time high, surpassing $4.50 per gallon. Strong demand, supply chain disruptions, and low inventories have been common inflationary pressures among consumer goods, including gasoline. But what specific market factors are fueling sky-high gas prices?

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After a brief recovery, it looks like the market decline may have resumed. Although we never quite got to the 20 percent bear market threshold for the S&P 500 in the previous decline, it now looks like we are headed down again, so we might well get there. Once we get to an official bear market, the question then becomes how much lower we might go. Indeed, those are the top questions I am getting right now: how bad can this get—and when will it be over?

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My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

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