“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” — Warren Buffett

1. Pfizer’s Covid-19 Booster Cleared for 5- to 11-Year-Olds — the Food and Drug Administration reported that children between the ages of 5 and 11 years old can get a booster dose of BioNTech SE and Pfizer Inc.’s PFE, 1.32% COVID-19 vaccine. Children in this age group should wait at least five months after getting the primary series of shots. The regulator authorized a booster of the BioNTech/Pfizer vaccine for teens back in January. The FDA’s advisory committee did not meet to discuss whether the benefits of a third dose of the BioNTech/Pfizer vaccine outweigh the risks for this age group because the companies’ request for authorization in 5 to 11 year olds “did not raise questions that would benefit from additional discussion by committee members,” according to the regulator.
2. U.S. Retail Sales Grew 0.9% in April — Retail sales—a measure of spending at stores, online and in restaurants—rose a seasonally adjusted 0.9% last month compared with March, the Commerce Department said Tuesday. That marked the fourth straight month of higher retail spending. Consumers spent more at restaurants and bars and boosted expenditures on vehicles, furniture, clothing, and electronics. They cut spending sharply on gasoline in April as pump prices pulled back briefly from a run-up related to the war in Ukraine. In another sign of economic momentum, the Federal Reserve said industrial production, a measure of factory, mining and utility output, increased a seasonally adjusted 1.1% in April—also a fourth month of gains.
3. Treasury Likely to Prevent U.S. Investors From Receiving Russian Debt Payments — the U.S. has carved out an exemption, set to expire on May 25, in its sanctions campaign against Russia to allow for sovereign debt payments. Without it in place, banks and investors won’t be able to process and receive bond payments made by the Kremlin, likely prompting Russia’s first default on its foreign debts since 1918. Russia has managed to stay current on over $2.5 billion in foreign debt payments since the onset of the war with Ukraine, largely thanks to the sanctions carve-out, although the U.S. has steadily tightened Russia’s ability to make payments, including new sanctions in April that cut off the Kremlin’s access to U.S. bank accounts for sovereign debt payments.
4. S&P 500 Pares Losses After Hitting Bear-Market Territory — the S&P 500 slid so far it was on track to close at least 20% below its January peak—what would have been considered a bear market. A comeback in the final hour of the trading day pushed the index higher. It has been decades since stocks have fallen for such a prolonged period. The Dow industrials notched their eighth straight weekly loss, their longest such streak since 1932, near the height of the Great Depression. The S&P 500 and Nasdaq had their seventh straight weekly loss, their longest such streak since 2001, after the dot-com bubble burst. All three indexes finished the week down at least 2.9%. Below is a chart of SPX performance following Sub 10% corrections.

The week ahead — Economic data from Econoday.com:

“Only when the tide goes out do you discover who’s been swimming naked.” — Warren Buffett

1. Powell Reiterates Half-Point Hikes Are Likely in June and July — Federal Reserve Chair Jerome Powell reaffirmed that the central bank is likely to raise interest rates by a half percentage point at each of its next two meetings, while leaving open the possibility it could do more. Asked if he was taking a larger 75 basis-point increase off the table, he restated his comment from a May 4 press conference that the Fed wasn’t “actively considering” such a move, according to a transcript of the interview released by Marketplace.
2. US Producer Prices Rise More Than Forecast in Sign of Persistent Inflation — The producer price index for final demand increased 11% from April of last year and 0.5% from the prior month, driven by goods, Labor Department data showed Thursday. That followed sizable upward revisions to the March figures. Excluding the volatile food and energy components, the so-called core PPI increased 0.4% from a month earlier and was up 8.8% from a year ago. While that measure rose at a softer-than-expected monthly pace, March was revised up to a 1.2% advance. The data, while moderating somewhat from March, suggest persistent inflation in the production pipeline will continue to filter through to consumer prices, which also slowed from the prior month. Producers are likely to continue facing higher costs as Russia’s war in Ukraine and Covid-related lockdowns in China further strain supply chains, adding to the probability they’ll pass those expenses onto consumers.
3. Bear Market Stats — according to Ned Davis Research, there have been 10 S&P 500 bear markets—defined as declines of 20% or more—since 1956, the average drop was 36.6% and last an average of 391 days. Below is the chart of the last 10-Bear Market going back to 1957.

The week ahead — Economic data from Econoday.com:

“Seen through the lens of human perception, cycles are often viewed as less symmetrical than they are. Negative price fluctuations are called “volatility,” while positive price fluctuations are called “profit.” Collapsing markets are called “selling panics,” while surges receive more benign descriptions (but I think they may best be seen as “buying panics”; see tech stocks in 1999, for example). Commentators talk about “investor capitulation” at the bottom of market cycles, while I also see capitulation at the top, when previously prudent investors throw in the towel and buy.” ― Howard Marks

1. 10-Year Treasury Yield Hits 3% for First Time Since 2018 — the yield on the benchmark 10-year Treasury note, which rises when bond prices fall, surged at the start of U.S. trading and reached as high as 3.008% in the afternoon, as traders braced for the outcome of this week’s Federal Reserve meeting. Yields on Treasurys largely reflect investors’ expectations for short-term interest rates over the life of a bond. Rising yields are often associated with a strengthening economy because faster growth and a tighter labor market can lead central banks to crack down on inflation.
2. Fed Lifts Rates by Half Point in Biggest Hike Since 2000 — the Federal Reserve approved a rare half-percentage-point interest rate increase and announced plans to shrink its $9 trillion asset portfolio starting next month in a double-barreled effort to reduce inflation that is running at a four-decade high. The moves, announced after a two-day policy meeting Wednesday, will raise the central bank’s benchmark federal-funds rate to a target range between 0.75% and 1%.
Together, the steps mark the most aggressive Fed tightening of monetary policy at one meeting in decades, aimed at rapidly reducing the economic stimulus that has contributed to rising price pressures. The Fed, which usually lifts interest rates in quarter-percentage-point increments, last raised rates by a half point in 2000.
3. U.S. Mortgage Rates Jump to 5.37%, Highest Since 2009 — The average for a 30-year loan jumped to 5.27% from 5.10% last week, Freddie Mac said in a statement Thursday. The Federal Reserve yesterday raised its benchmark rate by a half point, the biggest bump since 2000, and signaled further hikes to come in its effort to cool inflation and the overheated housing market. Higher mortgage costs — already up more than 2 percentage points this year — may increasingly push out would-be homebuyers and ease competition for a scarce supply of listings. At the current 30-year average, a borrower with a $300,000 mortgage would pay $1,660 a month, $377 more than at the end of last year.
4. Bitcoin Slides Below $37,000 as Investors Unwind Risky Bets — apart from a brief selloff in January, bitcoin’s price hasn’t been this low since last July, when it traded as low as $29,000. The largest cryptocurrency is now down about 47% from its November record high of $68,991. On Wednesday, the central bank announced a half-point rate increase. Fed Chairman Jerome Powell said there may be half-point rate increases in the summer months, but that officials aren’t considering a three-fourths of a percentage point increase. The widespread unwinding of risk assets has hit the cryptocurrency market particularly hard, driving down everything from bitcoin to NFTs. It has also started to have an effect on companies in the industry. Crypto companies were surging early in the year, capped when several paid millions of dollars to run ads during the Super Bowl. But the momentum has faded sharply since then.
5. Past Bear Market Statistics — based on a BAC ‘s strategist Michael Harnett, Looking at a history of 19 bear markets over the past 140 years, they found the average price decline was 37.3% and the average duration about 289 days. While “past performance is no guide to future performance,” Hartnett and the team say the current bear market would end Oct. 19 of this year, with the S&P 500 at 3,000 and the Nasdaq Composite at 10,000. Check out their chart below:

The week ahead — Economic data from Econoday.com:

“In investing, there is nothing that always works, since the environment is always changing, and investors’ efforts to respond to the environment cause it to change further ― Howard Marks

1. Russia to Cut Gas to Poland and Bulgaria, Making Energy a Weapon — Russia will cut off the gas to Poland and Bulgaria on Wednesday in a major escalation in the standoff between Moscow and Europe over energy supplies and the war in Ukraine. Moscow is making good on a threat to halt gas flows to countries that refuse President Vladimir Putin’s new demand to pay for the fuel in rubles. The European Union has rejected the move in principle but now payment deadlines are starting to fall due, governments across Europe need to decide whether to accept Putin’s terms or lose crucial supplies — and face the prospect of energy rationing.
2. Fidelity to Allow Retirement Savers to Put Bitcoin in 401(k) Accounts — employees won’t be able to start adding cryptocurrencies to their nest eggs right away, but later this year, the 23,000 companies that use Fidelity to administer their retirement plans will have the option to put bitcoin on the menu. The endorsement of the nation’s largest retirement-plan provider suggests crypto investing is moving further into the mainstream, but it remains to be seen whether employers will embrace it for their workers. Under the plan, Fidelity would let savers allocate as much as 20% of their nest eggs to bitcoin, though that threshold could be lowered by plan sponsors. Mr. Gray said it would be limited to bitcoin initially, but he expects other digital assets to be made available in the future.
3. U.S. GDP Drops 1.4% as Economy Shrinks for First Time Since Early in Pandemic — U.S. gross domestic product shrank at a 1.4% annual rate in the first quarter as supply disruptions weighed on the economy, though solid consumer and business spending suggest growth will resume. The decline in U.S. gross domestic product marked a sharp reversal from a 6.9% annual growth rate in the fourth quarter. The drop also marked the weakest quarter since spring 2020, when the Covid-19 pandemic and related shutdowns drove the U.S. economy into a deep—albeit short—recession. The drop in GDP stemmed from a widening trade deficit, with the U.S. importing far more than it exports. A slower pace of inventory investment by businesses in the first quarter—compared with a rapid buildup of inventories at the end of last year—also pushed growth lower. In addition, fading government stimulus spending related to the pandemic weighed on GDP.
4. Russia Makes Bond Payment In Dollars To Avoid Default — Russia said it had made payments on two dollar-denominated bonds, potentially staving off a default on the country’s foreign debt. The nearly $650 million in payments were made in dollars to a London branch of Citigroup Inc. that processes payments on behalf of bondholders, Russia’s finance ministry said Friday.
The money from Russia’s bond payments must land in bondholders’ accounts by Wednesday, the end of a 30-day grace period after Russia missed a payment in early April. Otherwise, the country can officially be called in default by its creditors.
5. Inflation Rises to Four-Decade High — Consumer prices rose 6.6% in March from a year before, up from February’s revised 6.3% increase, as measured by the Commerce Department’s personal-consumption expenditures price index. The March rise was the fastest since January 1982. The so-called core PCE index—which excludes volatile food and energy prices—increased 5.2% in March from a year earlier, down from a revised 5.3% in the year through February. On a monthly basis, core prices rose a seasonally adjusted 0.3% in March from the prior month, the same as the revised 0.3% increase in February. That was down from the 0.5% monthly pace in each of the prior four months—a mild slowdown that hinted broad price pressures might be starting to ease.

The week ahead — Economic data from Econoday.com: