Weak earnings and inflation fears send market sliding
On Wednesday, May 18, 2022 the S&P 500 slid -4.04%, the worst drop since June 2020.
Earnings announcements from Walmart on Tuesday and Target on Wednesday have reiterated some of the concerns Tectonic Advisors and the Investment Committee have been sharing on their weekly consult meetings and monthly investment updates.
Reflected in the last two months of Consumer Credit Reports, the consumer is struggling. Now those concerns are being verified by earnings of big box retailers, who are seeing margin pressures from inflation, combined with lower per ticket spending from consumers.
The Investment Committee believes inflation is softening, giving the market room to breathe moving forward. However, Target lost 25% of its market capitalization yesterday, indicating that investors are reacting with fear rather than rationality. Our active managers have been, and will continue, to take advantage of opportunities as they arise.
One bright spot, the bond market was up yesterday, a change from the past few months which helped model returns. Approximately 72% of annual Gross Domestic Product (GDP) is consumer spending dependent. If the consumer is struggling enough to push the economy towards a recession, the bond market could continue to bolster portfolios in the way we have become accustomed over the past decade.
We continue to be constructive on our portfolio positioning and anticipate models will continue to outperform in this difficult environment. We also believe our money managers and Tectonic Advisors, in collaboration with the Investment Committee, will be able to reposition portfolios to take advantage of mispriced opportunities as we move forward.
The market can be skewed by emotion and behavior. Your advisor should be your source of sanity and an anchor through these times. Keeping focus on your long-term strategy and goals, designed to weather volatility such as this, can help bring peace of mind.