U.S. and International Equities
U.S. Markets Finish Higher
The U.S. major market indexes finished higher, reversing three straight weeks of losses. Even as investors remain concerned about the possibility of a recession amid stubbornly high inflation and tightening monetary policy, stocks were oversold and due for a rebound. The American Association of Individual Investors bullish sentiment declined to a seven-week low and was below its historical average for the 30th consecutive week. Moreover, the S&P 500 witnessed back-to-back 5%+ weekly declines the prior week, which has only happened seven other times since World War II. Historically, stocks have rebounded strongly from such oversold conditions over subsequent months.
Amid challenges globally, both developed international stocks (MSCI EAFE) and Emerging markets (MSCI EM) finished the week higher. COVID-19 conditions continued to slightly improve in China. The situation still remains delicate given the spread of the virus and China’s aggressive COVID-19 containment measures.
Fixed Income Clawed Back Some Ground
The Bloomberg Aggregate Bond Index finished higher reversing three straight week of losses as the 10-year U.S Treasury bond yield declined to just over 3.1%. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, finished marginally lower and still remain negative for the year. Monetary policy continues to affect the performance of fixed income, which has seen its worst start in over 50 years.
Commodities Lower for a Second Straight week
Crude oil and natural gas pulled back again this week despite lower supply stockpiles worldwide. That being said, fundamentals appear to remain positive for energy investors. Amid strong demand headed into the summer travel season, gasoline inventories presently stand at an eight year low. In addition, the major metals, gold, silver, and copper, finished lower again this week. Even as inflation appears resinous, the actions of commodity investors could be indicating that perhaps an economic slowdown may be on the horizon, as commodity demand would dampen under such a scenario.
Economic Weekly Roundup
Market participant attention was squarely on Washington during both Wednesday and Thursday as Federal Reserve (Fed) Chairman Powell delivered commentary on monetary policy and inflation to both the Senate Banking Committee and the U.S. House Committee on Financial Services. In light of last week’s Federal Open Market Committee meeting where rates were increased by 0.75%, investors were looking for any additional clarification on the direction of monetary policy.
Powell confirmed what many market participants expected given the Fed’s commitment in curbing inflation. In addition, the Fed Chair also conceded that a recession could be in the cards as price pressures are adversely affecting many aspects of the economy. Powell acknowledged the challenges in restoring price stability via monetary policy. Moreover, skepticism of a “soft-landing” remains prevalent as many believe that the Fed is still behind the curve in curtailing inflation.
Weekly Employment Report
Initial claims for unemployment insurance for the latest week came in lower than the prior week but missed economists’ expectations. The readings remain historically low despite the recent uptick. Continuing claims, which still remain near record lows, increased from the prior week and came in below economists’ consensus estimate. The data continues to illustrate a very tight labor market, a culprit of the present inflationary climate.
The following economic data and potentially market-moving events are slated for the week ahead:
- Monday: durable orders (May), pending home sales (May)
- Tuesday: wholesale inventories (May), consumer confidence (June), Federal Home Finance Agency Home Price Index (April), S&P/Case-Schiller Home Price Index (April)
- Wednesday: Q1 Final GDP
- Thursday: Weekly Initial and Continuing Unemployment Claims, Core GDP deflator (May), Personal Consumption Expenditures (May), Personal Income (May)
- Friday: Markit PMI Manufacturing report (June), construction spending (May), ISM Manufacturing Report (June)
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