Week in Review: May 20, 2022


Week in Review: May 20, 2022

Despite a downbeat market, consumers keep spending 


Market summary

The S&P 500 and Nasdaq declined for the seventh straight week, the longest decline since 2001 and 2011. The S&P 500 suffered its biggest one-day decline since June 2020 on Wednesday, the second-worst start of a year in history. Energy was the best-performing sector, while Consumer Staples was the worst as select retail earnings were weaker than expected. Treasuries were mostly firmer, with the 30-year yield dropping back to 3% after hitting a recent high above 3.22% on May 6. The dollar index was down 1.5%, its sharpest weekly drop since February, after six weeks of gains.

This week   

Retail sales rose a robust 0.9% month over month (MoM) in April, while their March advance was revised strongly upward to 1.4% from 0.5%. A big surprise is that, excluding gas, autos and building materials, control group sales increased by 1.0% MoM in April and sales in March were revised to an increase of 1.1% (previously a 0.1% decline) (see Figure 1). The April report provides some comfort that the U.S. consumer continues to show great durability to the rising price pressures, higher borrowing costs and market volatility.  

April’s report showed that the strength in retail sales was broad based. Motor vehicle and parts dealership sales rose 2.2% following a 1.6% decline in March (see Figure 2). Despite the advance, low inventory levels continue to restrict the pace of vehicle sales, a trend we expect will persist throughout the year as supply chains see renewed disruptions from shuttered supply lines in Ukraine and China’s strict COVID policies. Sales of electronics and furniture also registered strong performances in April. Finally, sales of apparel rose for a fourth consecutive month.  

While consumers continued to spend on goods in April despite higher prices, we continue to see a rotation of spending toward services like dining. Food services sales posted another impressive increase of 2%, a positive sign that the rotation of consumer spending toward services gathered pace in April. The increase in food services shows that with COVID presenting less of a concern, high-touch-services activity has resumed. We also believe moving into warmer weather will further increase demand for services spending. Furthermore, the retail sales report only captures goods purchases (in restaurants and bars), so it misses recreational services spending this year that likely saw another strong gain last month.

Households are feeling the effects of higher prices everywhere, as illustrated by the plunge in consumer sentiment to a decade low in early May, but April’s retail sales report reinforces consumers’ continued inclination to spend. The return to economic normalization as COVID concerns wane continues to drive this spending shift from goods (particularly big-ticket items) toward services. This will impact earnings as a shift in spending from big-ticket goods to services will likely cause margin pressure for retailers. We saw that this past week when some large retailers reported weaker-than-expected earnings, citing increasingly difficult-to-manage inventory and costs that are hampering margins and impairing earnings. However the stock market is not the economy, and in the near term we continue to expect strong consumer spending, supported by consumer savings and wage gains, to drive U.S. economic growth. Given April’s strong retail sales together with the strength of core CPI last month, this is another reason we expect the Fed to continue hiking rates by 50 basis points (bps) in June, despite the recent financial market weakness.

Going Forward

Markets will remain under pressure with significant bouts of equity and bond volatility persisting as investors digest a regime shift toward tighter policy intended to slow inflation. In our view, investors should consider rebalancing back to target for risk assets that have drifted above prescribed weights. Neutral or underweighted positions should remain for the time being, and defensive positioning within equities is preferred. We suggest deploying new cash opportunistically and on a systematic basis (averaging) to capture peaks and ebbs in volatility. Within equities, we continue to believe the U.S. Large Caps are preferred, since Europe is likely to enter a recession later this year and China’s strict COVID policies hurt manufacturing. In fixed income, we remain defensive, short duration and higher quality in our positioning.



  • April’s new home sales are expected to decline to 748.5K and will be released on Tuesday.  
  • April’s durable orders are expected to decline to 0.80% MoM and will be released on Wednesday.
  • At the FOMC Minutes next Wednesday, the Fed will provide more details on their quantitative tightening plan. 
  • April’s Personal Consumption Expenditure will be released on Friday.

Figure 1: Control group retail sales (as of 5/20/2022) 

control group

Source: U.S. Census Bureau, Bloomberg, First Republic Investment Management.

Figure 2: Retail sales by category (percentage, as of 5/20/2022) 

Retail sales by category
Source: U.S. Census Bureau, Bloomberg, First Republic Investment Management.

Market Returns (USD) as of 5/19/2022





Global Equities

MSCI All Country World

0.8% -12.7% -17.3% -9.4%

S&P 500

-0.7% -13.7% -17.7% -3.9%

Dow Jones Industrial Average

-1.4% -9.6% -13.3% -6.0%


0.2% -19.8% -27.0% -13.8%

Russell 2000

2.2% -14.1% -20.5% -18.1%

First Republic Founders Index

4.0% -21.1% -31.3% -29.6%

Russell 1000 Equal Weighted

1.7% -10.3% -11.4% -5.0%


2.7% -9.5% -14.9% -12.1%

MSCI Emerging Markets

2.8% -10.9% -17.1% -21.8%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

-0.1% -2.4% -6.9% -6.6%

Bloomberg Barclays Intermediate Government/Credit

-0.1% -1.7% -6.1% -6.2%

Bloomberg Barclays High Yield Bond

-0.7% -6.6% -11.1% -8.1%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

3900.79 3930.08 4766.18 4115.68

Dow Jones Industrial Average


31253.13 31730.3 36338.3 33896.04

10-Year U.S. Treasury Yield (Constant Maturity)

2.85% 2.82% 1.51% 1.68%

Gold ($/oz)

$1,842.08 $1,821.80 $1,821.90 $1,869.50

Crude Oil ($/barrel)

$109.89 $106.13 $75.21 $63.35

U.S. Dollar / Euro ($/)

1.06 1.04 1.14 1.22

U.S Dollar / British Pound ($/£)

1.25 1.22 1.35 1.41

Japanese Yen / U.S. Dollar (¥/$)

127.4 128.12 115.16 108.6

Bitcoin Futures ($/XBT)

$29,945.00 $28,585.00 $47,977.03 $39,340.00