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.

    Key Investment Statistics

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

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