Week in Review: May 27, 2022

The S&P 500 snapped its seven-week losing streak by gaining 6.6%, its best week since November 2020. Positive inflation data, some better-than-expected earnings reports from retailers, and the release of the minutes from the Federal Reserve’s May meeting helped drive the returns.

Since the start of the year, investors have been nervously watching inflation,  wondering how high it would go and how aggressively the Fed would respond. With inflation continuing to accelerate in the first quarter, investors resigned themselves to the idea that the Fed would have to raise the federal funds rate by 0.50% at multiple meetings this year.

However, fears persisted that the Fed might be forced to raise the rate by as much as 0.75% at some point if inflation refused to abate. In an effort to disabuse investors of that notion, Federal Reserve Chair Jay Powell has stated that such a move is unlikely to be necessary. The release of the Fed’s May meeting minutes helped reinforce that narrative, stating “Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings.” The fact that the minutes did not take a more “hawkish” (aggressive) tone, coupled with a slight decline in the annual pace of the Fed’s preferred inflation gauge, helped push markets higher over the course of the week.

Markets also benefitted from earnings reports from a handful of retailers including Nordstrom and Macy’s which suggested that consumer trends are more differentiated, and perhaps not quite as dire as initially feared following disappointing earnings reports from Target and Walmart the prior week.