May 2022 Market Commentary
Our latest notes on the market
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Our previous comments have emphasized that this was likely to be a volatile year in the stock market as investors digest high valuation, changing Fed policy, an economic transition from buying things (goods) to doing things (services), and now economic weakness abroad. These factors have contributed to one of the worst starts to the year on record. We think this year has much in common with years like 1994, 2005, 2011, and 2015/2016. These volatile years saw little in the way of gains, but were not the peak of the market cycle. In the short term, the combination of extremely negative sentiment and oversold market conditions mean that powerful rallies, like the one experienced in March, can happen at any time. However, more sharp declines may be needed to truly exhaust sellers. Short term risks remain high, and taking a bold stance (in either direction) is not recommended.


Looking past the next few weeks though, it does appear that the risk/reward into year-end is improving. Corporate earnings have continued to be surprisingly strong so far this year making company valuations more attractive. The market is already pricing in substantial rate hikes from the Federal Reserve, and several measures suggest that inflation is already peaking. The labor market also continues to be historically strong.


We continue to monitor the market closely and will look to reduce risk if appropriate. We will continue to follow our indicators and seek to tilt accounts towards areas of strength within the market. We also remind investors that they own shares in high quality companies that have weathered a variety of economic and market environments.

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