This week, Gabrielle Reilly, CFP®, GFP (USA), MSBA, reminds us why time horizons matter in investing before giving an update on the economy and sharing the latest earnings report from Core Portfolio holding Salesforce.
Welcome to the Weekly Market Update. Last month, the stock market provided a wonderful example of the importance of time horizons in investing. If you followed the daily action of the stock market in May, it was a wild rollercoaster ride, with sharp plunges and surges. It’s enough to make you sick. But if you just look at the month overall, the S&P 500 index rose 1 point, or point zero zero 5%. It is more important to focus on the data, so we will look at the latest news on the economy, as well as earning reports from one of our technology companies that reported this week.
Inflation remains the top concern of consumers, investors, and the Federal Reserve. The economy has been running too hot, and the Fed’s only tool is the blunt hammer of raising interest rates to cool demand. They can do nothing about the supply side, such as supply chain bottlenecks in China or labor shortages. As we can see in this first chart, the number of job openings remain at record highs, at double the number of unemployed people. The Fed is hoping to cool demand enough to bring down the number of open jobs without creating too much unemployment and a recession. That is a delicate balance. On the production side of the economy, manufacturing remains in expansion mode but down from its highs, as we can see in this second chart of the ISM Manufacturing Purchasing Managers Index. We are asking the Fed to land a plane in a raging storm.
Salesforce.com, a recent addition to the Core portfolio, reported quarterly results which beat estimates on both the top and bottom lines. Revenue jumped 24% year over year to $7.4 billion as the largest pure play seller of subscription based enterprise software claimed to see no slippage in demand despite the macroeconomic challenges impacting many industries. Adjusted operating income of $1.3 billion beat Wall Street targets, and Salesforce even nudged up its operating margin target for the full year. In the current environment, Salesforce benefits from its massive scale and the breadth of its offerings. The company, which is on track to surpass $30 billion in annual revenue this year, has expanded well from the customer relationship management software with which it first made its name. The recent addition of Slack gives Salesforce an even deeper foothold with companies looking to enable increasingly remote workforces.
What does it all mean? While May was a crazy month in the markets, keep in mind that investors need to have at least a five year time horizon for investing in stocks. We should expect volatility, but keep our eyes focused on the long term in order to capture the superior returns that stocks deliver, and not get shaken out at the worst possible moment due to fear. Investors distressed by daily volatility in the markets should try to stop following them as it may lead to poor decisions. We will continue to follow the economic data, company earnings, and market action for you. So please, sit back, relax, have great weekend, and join us next time for the Weekly Market Update.