U.S. and International Equities
Markets Finish Lower
Amid a volatile week for the markets around the Federal Reserve (Fed) policy meeting, the U.S. major market indexes finished lower for the fifth straight week. Many investors remain concerned over inflation’s potential impact on the economy, corporate profits and stock valuations, in addition to the uncertain global economic outlook. International equities, per the MSCI EAFE and the MSCI EM indexes, lost ground. The MSCI EM was the biggest laggard as concerns over the Chinese economic outlook grew amid COVID-19 lockdowns and the U.S. dollar staged a sharp rally.
The energy sector continues to benefit from increasing crude oil and natural gas prices. This sector continues to soundly lead all sectors for 2022 as demand for fuel continues to outpace supply and Europe prepares to further wean itself off of Russian oil. The communication services sector, which has been one of worst performers during 2022, received some buying support from value investors this week.
Fixed Income Lower
The Bloomberg Aggregate Bond Index finished lower this week as investors continue to anticipate more rate increases this year and a shrinking balance sheet from the Fed along with and stubbornly high inflation. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, also finished lower for the week.
As has been the theme for much of 2022, both crude oil and natural gas prices continued their treks higher even amid the release of international fuel stockpiles. The major metal prices for gold, silver, and copper continued to lose ground for the second consecutive week. Copper and silver are negative for 2022, as gold remains positive.
Economic Weekly Roundup
The Fed ended its two-day Federal Open Market Committee (FOMC) meeting this week and raised short-term interest rates by 0.50%. In addition, the FOMC announced that balance sheet normalization would begin June 1 with reinvestment caps at $47.5 billion for three months until fully reducing Treasury and mortgage securities by $95 billion per month in September. Moreover, Fed Chairman Powell reiterated that a 0.75% rate hike would be off the table, as some investors were expecting this at the next Fed meeting in June.
Eurozone April Services and Manufacturing PMI moved in opposite directions in comparison to March. Services PMI increased from over 55 to 57 as services reopened and expanded across Europe following COVID-19 lockdowns. Manufacturing PMI contracted from over 56 to 55, indicating potential slowing growth. Nevertheless, both readings came in above 50, which indicates expansion.
Weekly and Monthly Employment Report
Initial claims for unemployment insurance for the week ending April 30 came in above week’s total as well as economists’ expectations but remain historically low. In addition, continuing claims declined from the prior week and came in below economists’ estimates. Continuing claims continue to plumb record lows, surpassing levels not seen since 1970. The data continues to illustrate a very tight labor market.
Last month, U.S. businesses added over 420,000 jobs in April, matching the same pace as the prior month after revisions. The unemployment rate remains unchanged at 3.6%, which is keeping the labor market tight. Moreover, the number of people on temporary layoffs are approximately the same as February 2020, before the onset of COVID-19.
The following economic data is slated to be released during the week ahead:
Monday: March wholesale inventories
Tuesday: April National Federation of Independent Business (NFIB) Small Business Index
Wednesday: April Consumer Price Index, real hourly earnings, Treasury Monthly Budget statement
Thursday: Weekly initial and continuing unemployment claims, April Producer Price Index
Friday: April export/import prices, May University of Michigan Consumer Sentiment
Next week, we head toward the conclusion of earnings season with 24 companies reporting results.
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