U.S. and International Equities
U.S. Markets Finish Lower
The U.S. major market indexes finished lower for the seventh straight week, the longest such streak in over ten years as the S&P 500 Index nears bear market territory with an over 17% decline for the year. Investors remain concerned about inflation’s potential impact to the economy, the aggressive path of upcoming Federal Reserve rate hikes, slowing corporate profit growth, and pockets of elevated stock valuations. This week’s disappointing earnings reports from several major retailers reaffirmed market participant concerns.
International equities, per the MSCI EAFE and the MSCI EM indexes, bounced back this week. The MSCI EM caught a bid this week as the Chinese government attempts to kick start their economy with monetary tools while most central banks are in tightening mode to fight inflation. In addition, the U.S. dollar’s weakness this week helped international equities.
Fixed Income Mixed
The Bloomberg Aggregate Bond Index finished higher for the second consecutive week as bonds gained some traction in the face of steep equity market declines, 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 lower for the week, continuing their downward trajectory for 2022.
Natural gas prices continued their run higher this year and finished solidly in the green this week amid last week’s tepid performance. Discussion of the United States initiating tariffs along with European Union sanctions on Russian oil continue to put upward pressure on global energy prices. The major metal prices for gold, silver, and copper had strong weeks after losing ground for three consecutive weeks. All three major metals are lower for 2022.
Economic Weekly Roundup
April retail sales just came in just below economists’ expectations. Removing automobile sales, sales increased more than expected. Miscellaneous retail and online sales were major drivers of last month’s results. On a year-over-year basis, sales were up over 8% on the headline number, and just under 11% excluding autos. That being said, retail sales are not adjusted for inflation.
New home construction declined last month for the second straight month. Moreover, the April reading came in below economists’ expectations. April housing starts are over 14% higher compared to last April. Housing demand is strong given low home inventories, however concerns exist due to materials shortages, rising mortgage rates, along with higher costs given the present inflation levels.
Weekly Employment Report
Initial claims for unemployment insurance for the week ending May 14th came in above last 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 remain near record lows, declining to levels not seen since 1970. The data continues to illustrate a very tight labor market.
The following economic data is slated to be released during the week ahead:
Tuesday: May PMI composite, May Markit PMI manufacturing and services report, April new home sales
Wednesday: FOMC Meeting Minutes from May 4, April Durable orders and shipments
Thursday: Weekly initial and continuing claims, Q1 GDP (2nd estimate), April pending home sales
Friday: April personal consumption expenditures, personal income, wholesale inventories, May University of Michigan Consumer Sentiment,
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