May 16, 2022

Market Update


The Fed is using tools to bring excess demand into better balance w/ constrained supply. It will be challenging to remove accommodation to get inflation under control while sustaining healthy labor market conditions. Some of the issues weighing heavier for the markets last week were: the Fed policy, Russia, China's new lockdowns and growth slowing.


  • Dow suffers longest losing streak since 2001 as stocks benchmarks extend weekly losses despite closing sharply higher Friday.
  • Tesla is down 36% since his stake in Twitter emerged. In other words, Tesla has lost $400B of value as Elon has pursued a $44B acquisition.
  • Since 1957, the S&P 500 has dropped 19% 15 times.
  • The S&P 500 energy sector is up ~47% this year.

Stocks for the Longer Run

The S&P dropped 19.6% from its high, but not quite the 20% required to refer to it as a bear market. The same thing happened in 2018 before the Fed capitulated on tightening monetary policy, an in 2011, as the U.S. looked willing to default on its debt and Europe threatened to fall apart.


  •  Normally, it takes approximately two years to get back to even from a bear market
  • Vanguard says that since 1935, US stocks have not kept up with inflation during 31% of
    one-year time periods, but only 11% of 10-year periods
  • Half of S&P 500 constituents are down more than 25% from their highs
  • US market is trading at 82nd percentile
  • Plus, dollar is at 20-year high – so foreign stocks are cheap to buy

Oil & Gas

As gas prices increased, there has been debate about whether US oil companies are doing enough to rein in high gas prices, and whether they should be held accountable for not increasing the production of crude oil. We show that, even though the price of oil makes up over half of the retail price of gasoline, oil companies play an extremely limited role in how retail gas prices are set.


  • Since 2015, an average of 1,560 wells have been drilled on federal lands annually, but only 47% of federal permits issued were actually utilized
  • Even under the most optimistic view, U.S. production increases would likely add only a few
    hundred thousand barrels per day (to a 100MM barrel / day global market)
  • A 22% decline in the price of oil should translate to a 13% decline in the pump price. However, that did not happen.
    • The spot price of gasoline (at the refinery gate) generally rose and fell with WTIC
    • Yet, retail gas prices rose as expected, but only fell 6% (rather than 13%)