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Since the start of 2022, equity markets have given up
substantial gains from their impressive run off the March 2020
pandemic low. Recent volatility has stemmed from anxiety
surrounding upward pressure on inflation which was intensified by
Russia's invasion of Ukraine and renewed supply chain disruptions
from COVID-19-related lockdowns in China. As much anticipated, the
US Federal Reserve initiated a tightening cycle, including a 50
basis point increase in the federal funds rate in early May and
announcement of plans to begin shrinking its balance sheet in June.
The Fed also added the sentence "The Committee is highly attentive
to inflation risks" and, with this development, we study current
market conditions from the frame of heightened inflationary
strains.
Factors favoring low risk and sales-based value metrics,
including 1-Month Realized Stock Return Volatility and TTM
Sales-to-Enterprise Value, respectively, outperformed on average
during previous episodes of the sharpest increases in inflation,
consistent with current market results
The number of stocks trading well below their 52-week highs has
steadily increased since November, recently reaching a quarter of
our US Total Cap universe (3,000+ stocks), with the largest
expansion associated with the long duration Information Technology
and Consumer Discretionary sectors
Analyst outlook has become increasingly negative, with nearly
half of the US Total Cap universe recently experiencing net
negative earnings revisions for the current fiscal year, affecting
a high percentage of Communication Services and Consumer
Discretionary constituents, while Energy and Materials sector
outlook was more positive
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
