Week in Review: May 20, 2022

Markets ended the week lower as investors continued to fret about the Federal Reserve and the increasing chances of a recession.  Friday saw the S&P 500 fall into bear market territory (down 20% or more from record high) intraday, before rallying in the final hour to close flat, thus avoiding “officially” entering bear market territory. Nonetheless, the week’s 3.1% decline for the S&P 500 marked the seventh consecutive week of losses, the longest such stretch since 2001, and left the S&P 500 down 18.7% from its record-high close on January 3.

Growing concerns of a recession were exacerbated by comments from Federal Reserve Chair Jay Powell and disappointing earnings reports from notable retailers. Speaking at an event on Tuesday, Powell reaffirmed the Fed’s commitment to lowering inflation, even if doing so resulted in some “pain.” “Restoring price stability is an unconditional need. It is something we have to do.” Powell further stated that the Fed needs to see inflation coming down in “a convincing way” and that until it does it will ‘keep going’ with rate hikes.”

Earnings results from Target and Walmart raised concerns about the impact of rising prices on corporate earnings and, perhaps more importantly, the consumer. While both companies reported better-than-expected sales, both missed earnings expectations due to inflation, supply chain issues, and shifting spending patterns as consumers changed their focus from discretionary items to staples. The latter raised concerns about companies’ abilities to continue to pass along costs to consumers as well as the overall health of the consumer.