Fed Bumps and Bear Markets

Fed Gives Another Bump: Only a few weeks ago, it seemed unrealistic that the market would get a 75bp (0.75%) hike in June. Yet, the recent CPI report and a “mysterious” WSJ article last Monday created an environment where 75bps became the “base case”. Thus, not a complete surprise for the market. What happened? Last week was the Fed’s moment – their moment to try to regain credibility in the eyes of the market regarding inflation. Did they deliver? That remains a hotly debated topic. The FOMC voted 9-1 to raise the fed funds rate by 75bps to a range of 1.50% to 1.75%, the largest rate hike since 1994.

Official Bear Market Territory: Last week, the S&P 500 closed in official bear market territory, down over 20% from its peak in January. The bad news: history suggests there could be more downside to come. In previous bear markets over the past 80 years, equities fell a further 14% on average from the date the 20% mark was breached (see chart below from Oxford Economics). That subsequent downside was greatest when the bear market coincided with a recession. The good news: those historical losses were usually recovered quickly. Twelve-month returns averaged over 13% for those investors that bought immediately after a 20% decline, with the average rebound in recession periods slightly higher over that time horizon.

Feeling the Burn: A recent article from Bloomberg noted that 1/3 of American households making less than $250,000/year (i.e., most of the country) claim to be living paycheck to paycheck. The greatly bemoaned inflation is cited as the primary reason. Of further interest is that there is a notable divide between the boomers and millennials amidst this demographic. The millennials are feeling the burn far more than boomers, it would seem (see chart below).

Points for Creativity: We’re all aware that this year’s supply chain issues have compelled a degree of improvisation, but we’re a bit stumped by the recent move made by a New Hampshire distillery. Tamworth Distillery unveiled a new line of whiskey with a, let’s call it “special”, ingredient: invasive green crabs. Is it good? Who knows, but sheer curiosity might be a good enough marketing hook. Whatever the case, there’s one supply chain snarl they won’t have to worry about.