- Stocks pare losses to end volatile week – The S&P 500 flirted with bear-market territory, down about 20% from its peak, but closed flat for the day after a late-day push off the lows. There were no economic releases today or new catalysts for the midday weakness, but sentiment remains fragile, as ongoing Fed tightening and earnings-growth headwinds have triggered recession worries. Tech and growth-style investments added to their year-to-date underperformance, while defensive sectors and bonds provided some portfolio stability. If economic data is able to stay resilient in the coming months, the recession fears could gradually unwind. However, it will likely require greater clarity on the inflation outlook for markets to find a durable bottom. Bucking the trend, international stocks were higher, helped by news that China cut a key benchmark rate for mortgages to boost its property market.
- China eases policy, helping international returns – International sentiment got a boost this morning following moves by China to shore up its economy. The Chinese central bank unexpectedly cut the five-year loan prime rate, a reference for mortgages, to 4.45% from 5%, the biggest reduction since 2019. The move is welcomed by investors, especially after the soft economic data released earlier this week that added to global growth concerns. Retail sales, industrial production and property investment all declined in April, as the economy continues to be impacted by lockdowns. However, with COVID-19 trends improving, businesses beginning to reopen, and the help of central-bank easing, economic and market trends should start to improve. It is worth noting that in a week where U.S. stocks were down almost 5%, international equities were able to eke out a gain.
- Balancing growing risks with solid fundamentals - Stocks attempted to find their footing after the S&P 500 dipped briefly below the 20% threshold that defines a bear market. Against a backdrop of ongoing price shocks, slowing growth, and tightening monetary policy, valuations have adjusted lower, with the speculative areas of the market and high-valuation investments getting hit the worst. We don't think that a recession is inevitable, but because credible threats to the expansion exist, volatility is likely to stay elevated. Despite the headwinds to economic and earnings growth, we believe that there is enough underlying strength that the economy can avoid a contraction. Incomes are supported by a tight labor market, household savings remain elevated, and debt is low, all pointing to resilient consumer demand despite the surging inflation. On the business side, inventories will need to be rebuilt as supply chains normalize, and the recent strong growth in industrial production supports a positive outlook for capital investment. Therefore, there is a solid foundation, in our view, for an eventual rebound. But it might not be as swift as in recent years because of the lingering uncertainties.
Investment Policy Committee
The Investment Policy Committee (IPC) defines and upholds Edward Jones investment philosophy, which is grounded in the principles of quality, diversification and a long-term focus.
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This is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.
Investors should understand the risks involved in owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.
Past performance does not guarantee future results.
Market indexes are unmanaged and cannot be invested into directly and are not meant to depict an actual investment.
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Systematic investing does not guarantee a profit or protect against loss. Investors should consider their willingness to keep investing when share prices are declining.
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Special risks are inherent in international investing, including those related to currency fluctuations and foreign political and economic events.