Q2 2022 Update: When consumer sentiment hits rock bottom.

The volatility from the first quarter carried into the second as stocks dipped into bear-market territory and sentiment hit decade lows. The driver continues to be the concern of inflated prices and if the requisite interest rate hikes to cool inflation will cause a deep economic downturn.

On that note, the second half of June revealed green shoots of optimism for the disinflation camp. Commodity prices and crude oil prices are down from their mid-June highs. Brent crude hit a June-high of $126/bl and is trading at $101 as of this writing. The Bloomberg Commodity ETF (BCI) is down about -19% from its June highs. Moreover, we are seeing sustained price relief in the Manufacturing PMI price index. The Manufacturing PMI prices index hit a peak in March of 75 and has steadily declined each month with readings of 73.5, 70.2 and 65.2 in June. Lastly, the PMI supplier deliveries index continues to improve after hitting its slowest month in April with a reading of 67.2. May and June were 65.7 and 57.3, respectively. For this number, a lower reading indicates faster deliveries.

Finally, let’s see what information we can gather when consumer sentiment hits multi-year low points. JP Morgan created a helpful chart that shows low points in consumer sentiment and the subsequent 12-month return from that sentiment reading. Sentiment hit its lowest point since 1980 in June of this year. The subsequent 12-month returns in the previous 8 sentiment troughs averaged +24.9% on the S&P 500. No one knows where the exact market bottom will be. However, this is a very helpful data point to keep in mind when sentiment is dire, and volatility is running high. It reminds me of Wayne Gretzky’s quote, “Skate to where the puck is going, not where it has been.”

Thank you for your confidence and support in what we love to do.

Sincerely,

Cory Michael Nakamura CFA, CFP®, PPC®

Chief Investment Strategist