Insights

June 14, 2022 | Investment Review

Investment Review - June 2022

  1. The Dow Jones Industrial Average and the S&P 500 posted slight gains in the month of May, up 0.3% and 0.2%, respectively. The technology heavy Nasdaq Composite declined 1.9% for the month.  Mixed economic news, rising interest rates, and the prospect of the Fed shrinking its balance sheet, gave investors pause.

  2. S&P 500 companies’ Q1 revenues and earnings were strong despite rising costs, supply chain challenges, and a difficult comparison against unusually high growth for Q1 2021. The blended year-over-year revenue growth rate for Q1 was 13.6%. The blended year-over-year earnings growth rate for Q1 was 9.2%. Both figures are above the 10-year average revenue and earnings growth rates of 4.0% and 8.8%, respectively.

  3. While corporate earnings continue to rise, the multiple investors are willing to pay for those earnings is declining. The forward P/E of the S&P 500 has declined from 21.4x at the start of this year to 17.5x currently. Rapidly rising bond yields have a negative influence on valuations. Assuming we have a soft landing and avoid a recession, the S&P 500 should find support at a forward P/E of 16x, which is its 25-year average.

Sources: Bloomberg, FACTSET, U.S. BEA, U.S. BLS, Federal Reserve, Instit. For Supply Mgmt, ISI, IBD, Yardeni Research

Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.


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