U.S. and International Equities
U.S. Markets Finish Lower
The U.S. major market indexes finished solidly higher this week, reversing seven-straight weekly declines. This week ended the longest such streak in over ten years for the S&P 500 Index as the index neared bear market territory last week.
As inflation along with the Federal Reserve’s (Fed) likely response to curbing price pressures remain in the forefront of investors’ minds, equities performed well as investors added approximately $20 billion to equity funds this week per Bloomberg. Moreover, well received deep-discount and high-end retail earnings reports gave some reasons for market participants to believe that the U.S. consumer might be able to weather price pressures as global supply chain conditions improve. The week ended with a relief rally after the Fed’s preferred inflation measure cooled some.
Fixed Income Rebounded for the week
The Bloomberg Aggregate Bond Index finished higher for the third consecutive week as bonds continue to gain some traction following one of their toughest starts in 50 years, as the 10-year U.S Treasury bond yield continues to retreat. Investors are now anticipating softer economic conditions given the Fed’s hawkish stance on monetary policy. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, finished very strong for the week, but the asset class remains negative for the year.
Commodities Continue Higher
Natural gas prices continued their run higher this year and finished solidly in green for the second straight week with crude oil joining the rally. European Union sanctions and tariffs on Russian oil continue to put upward pressure on global energy prices. The major metal prices for gold, silver, and copper had a mixed week after losing ground earlier this month. As of this week, gold is now higher for the year.
Economic Weekly Roundup
The Fed Federal Open Market Committee (FOMC) minutes were published this week showing the Fed made a commitment to 0.5% interest rate increases in both June and July. In light of stubbornly high consumer prices, the Fed’s minutes did not come off as a major surprise to market participants. LPL Research continues to believe that supply shocks from COVID-19 as well as other geopolitical events are contributing to the current price pressures. Moreover, Fed Chair Powell has stated that “our tools do not work on supply shocks.” The latest inflation metrics show a slight cooling in the year-over-year growth rates.
April home sales declined over 16% from a month earlier. This widely missed economists’ expectations and represented the slowest pace since the beginning of the pandemic. The median price of a new home sold in April was over $450,000, which represents an increase of nearly 20% from the year before. Elevated home prices, broad inflation, and higher interest rates are weighing heavily on the housing market.
Weekly Employment Report
Initial claims for unemployment insurance for the week ending May 14 came in below last week’s total but slightly missed economists’ expectations. They still remain historically low. Continuing claims, which remain near record lows at levels not seen since 1970, increased from the prior week and came in above economists’ estimates. The data continues to illustrate a very tight labor market and a culprit of the present inflationary climate.
The following economic data is slated to be released during the week ahead:
Tuesday: Consumer Confidence (May), Dallas Fed Manufacturing Index (May), Chicago Purchasing Manager’s Index (PMI, May), Case-Shiller Home Price Index (Mar)
Wednesday: Mortgage Applications (May 27), Institute for Supply Management (ISM) Manufacturing Index (May), Wards Vehicle Sales (May), Job Openings and Labor Turnover Survey (JOLTS, April) Construction Spending (April)
Thursday: Productivity and Unit Labor Costs (1Q F), Weekly Initial and Continuing Unemployment Claims, Factory Orders (April)
Friday: Nonfarm payroll report (May), ISM Services Index (May)
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