Stocks Snap Back

Stocks Snap Back

Stocks and bonds may be snapping out of their inflation-fueled funk.

All three major stock indexes entered Friday’s trading session with gains of at least 3% for the week, poised to break a seven-week losing streak where nearly 90% of S&P 500 stocks fell below their respective 20-day and five-day moving averages. Bond prices rose and yields fell. The 10-year Treasury’s yield, which peaked intraday at 3.208% less than three weeks ago, has been trading closer to 2.75% of late.

What’s changed? Mostly perception.

Minutes from the Federal Reserve’s early-May meeting released Wednesday confirmed the central bank’s plans for the months ahead—expect 50-basis-point (or 0.50%) increases to the fed funds rate in June and July. This confirmation boosted trader confidence that bigger hikes weren’t on tap, and stocks rallied on the news.

The minutes also indicated that policymakers see a “very strong” economy and an “extremely tight” labor market. This suggests the Fed does not consider recession an imminent threat. While the Federal Open Market Committee characterized inflation as “well above” target, some members openly expressed a view that inflation has likely peaked.

And perhaps it has: The Fed’s favorite inflation gauge rose 0.2% in April and was up 6.3% from a year earlier, according to the Commerce Department—that’s down from 6.6% year-over-year in March.

Meanwhile, weekly jobless claims hit a post-COVID-19 low about two months ago and have been creeping up since, giving some investors agita. We think their concerns are misplaced since these numbers are rising from historically low levels. This week’s reading of 210,000 new claims is slightly below where we were before the economy shut down in March 2020. The average for the five years preceding the pandemic recession? 251,000.

If you’re looking to promote the narrative that recession is right around the corner, Thursday’s uptick in jobless claims offers some backup. But we’re not buying it.

That’s not to say we’re ready to call a market bottom either—doing so is a fool’s errand. Here is what’s more relevant for your portfolios: We have been here before. We’ve seen markets fall as much as they have this year—and more. We’ve seen well-run mutual funds decline in value like this before. And we know that bear markets end and bull markets follow. While buying during bear markets can look like a poor decision initially, longer-term results are typically profitable.

Bonds Bounce

Inflation expectations are falling. The 10-year breakeven rate—an indication of bond traders’ predictions for future inflation—has been in decline in recent weeks. Since peaking at 3.0% on April 21, the breakeven rate has fallen to 2.6% as of Thursday, suggesting that inflation will run close to the Federal Reserve’s preferred level over the next decade.

Meanwhile, as noted above, the 10-year Treasury yield has been falling. Over 3.20% in early May, it dropped as low as 2.72% this week. If traders were betting that inflation will continue rising unchecked, you’d expect bond prices to fall and their yields to rise. That’s not happening.

Some who are bearish on the economy and bullish on bonds think the 10-year Treasury yield is headed back to 1.5% or even 1%. We think it’s more likely that yields have reached a new plateau. That would mean bond investors would earn a much higher yield than they did at the beginning of the year, even as prices move within a narrow band from day to day.

Whether bond yields have found a new trading range or continue to fall further, we’re encouraged that bonds are, once again, playing their traditional role as buffers to stocks—rising when stocks fall and vice versa.

Chart of the Week: A More Manic Mr. Market

Director of Research Jeff DeMaso:

If the stock market seems more volatile this year, that’s because it is. Since its 1957 inception, the S&P 500 index has typically moved about 0.7% up or down on any given day. So far this year, the S&P’s average daily move has been 1.2%.

If 2022 ended today, it would clock in as the index’s fifth most volatile year ever, behind 2002, 2008, 2009 and 2020.

Look at those years again. In the S&P 500’s 55-year history, the five most volatile years have all fallen in the last two decades. Volatility hasn’t suddenly spiked higher, though. Instead, it has been trending higher for decades.

My best guess is that this higher volatility is an unintended consequence of improved technology and lower trading costs. Decades ago, trading was onerous—it was done over the phone, trading commissions were high and bid-ask spreads were wide. In 2022, anyone with a smartphone can trade with a tap on the screen at nearly zero cost. Is it any wonder that people are trading more frequently, and markets are moving more dramatically?

To be clear, a more volatile market is not a less investable market. Yes, big daily swings create noise and risk, throwing long-term investors off course, temporarily. Our job is to rise above the noise and look at volatility as an opportunity—when prices move above or below their estimated values, it represents a chance to sell at a profit or buy at a bargain (or to realize losses to lower tax bills).

Note: Chart shows average daily absolute percentage change in S&P 500 index level by calendar year from 1958 through May 2022 along with the linear average trendline over the period. Sources: S&P Dow Jones Indices, Adviser Investments.

Clean Up With Clean Energy?

With gas prices high and oil supply chains disrupted, is now a good time to buy clean energy stocks?  

Adam Johnson, portfolio manager, Adviser Investments’ American Ingenuity strategy:

I’m a big believer in clean energy companies. Whether you call it “renewable,” “green” or “alternative” energy, we know some of these growing businesses will be the big brand names of tomorrow.

But right now, their stock prices are depressed for a litany of reasons.

Supply chain disruptions have been one major speed bump. Solar panel production is being impeded by the U.S. ban on imports of polysilicon from China due to human rights violations. Likewise, we’re seeing shortages of semiconductors and other key materials.

Interest rates are another headwind. Many clean energy firms are young companies that need to raise capital, and as rates go up, their financing costs escalate. On top of that, many don’t have earnings yet. When I try to place a value on future earnings, higher interest rates translate into lower values today.

Overall, clean energy stocks fall into the “growth” category, which is decidedly out of favor with investors right now. But that’ll change. Despite the recent big price declines—or rather, because of the lower prices on offer today—now may be a pretty good time to be selectively buying in the aggressive growth portion of your portfolio.

But don’t buy willy-nilly. I think it’s crucial to hold out for quality companies that are on track to be the “best in breed.” To me, that means they have manageable amounts of debt and are growing their top-line revenue. Another critical factor is a quality management team that can clearly articulate a pathway to future profits.

Remember, we’re not talking about cryptocurrency; these companies are providing actual goods and services. I believe long-term trends are providing a power tailwind for clean energy and the companies that provide it.

Financial Planning Friday
529 Plan FAQs

May 29 is this weekend. What better time to answer often-asked questions about 529 college saving plans?

Who should own a 529 plan? Anyone can open a 529 (college savings) plan, but parents or grandparents are the most common account owners (with their children and grandchildren as the beneficiaries). Typically, accounts owned by parents hold an edge because nonparent accounts (including grandparents) can negatively impact the beneficiary’s financial aid eligibility. But thanks to changes coming in the 2024–2025 school year, grandparents will no longer have to worry about this financial aid trap.

Can I have more than one 529? You can open multiple 529 plans and several different account owners can contribute toward a single beneficiary’s education savings. In 2022, the gift-tax exclusion is $16,000 and (even better) 529 plans allow you to “front-load” five years of gifts—up to $80,000 per grantor per beneficiary. As such, this can be a powerful way for parents or grandparents to distribute their living legacy and move assets out of their estate.

Can you change the beneficiary? Account owners can change the beneficiary so long as the new recipient is in the same family as the original beneficiary. For instance, if you set up a 529 plan for your eldest child and there are funds left over, the IRS allows one tax-free plan-to-plan rollover (to another eligible family member) per 12-month period.

What if I overfund my 529? In addition to changing the beneficiary, families can also take tax-free withdrawals up to $10,000 to pay for K–12 education, vocational school tuition and even student loans. This includes apprenticeships and other professional training programs. Nonqualified expenses may also be withdrawn (and will have grown tax-deferred), but the benefit may be canceled out by federal taxes on the account earnings plus an additional 10% penalty. One exception: If your child receives a scholarship, withdrawals up to the amount of the scholarship will not incur the 10% penalty for nonqualified education expenses.

If you have additional questions about the intricacies of 529 plans, call anyone on your wealth management team. After all, we’re The Planner You Can Talk To!

Any topics you’d like us to address in a future FPF section? Please contact your team or write to us at We’d love to hear your suggestions.

Ask Us a Question!

We’re always interested in the topics or concerns you might like us to comment on. As much as we try to cover the investment and economic fields every week, we know there’s still more that you might want to hear about. Ask us a question about investing, the markets or financial planning and one of Adviser Investments’ experts will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY.

Adviser Investments in the Media

Chief Investment Officer Jim Lowell was in high demand this week, speaking about the bond market’s reaction to the Fed meeting minutes, Bloomberg Radio about why current inflation doesn’t look like a replay of the ’70s and Fox Business about negative momentum and calling a market bottom.

Portfolio Manager Adam Johnson appeared on Fox Business for a look at Elon Musk’s latest Twitter gambit and to give his thoughts on Amazon shareholders approving the company’s 20-for-1 stock split. He also stopped by Cheddar News to explain why the Fed doesn’t seem to think recession is imminent.

In this week’s Market Takeaways, Portfolio Manager Steve Johnson examined why bad economic data can bode well for the markets.

Looking Ahead

Markets and Adviser Investments’ offices will be closed on Monday in observance of Memorial Day, with utmost appreciation for all who made the ultimate sacrifice. We’ll be back at our desks Tuesday morning.

Next week, we’ll get helpful reads on home prices, manufacturing, consumer confidence, construction spending, vehicle sales, job openings and voluntary quits, and the Fed’s “Beige Book” of anecdotal reports from around the nation.

As always, please visit for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit or call 800-492-6868.

Please note: This update was prepared on Friday, May 27, 2022, prior to the market’s close.

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