- Initial jobless claims declined slightly to 229,000 from 231,000, though not as much as forecasters expected, indicating the labor market remains historically tight.
- Continuing claims ticked up marginally to 1.32 from 1.31 million, further demonstrating the strength of the jobs market, which still shows roughly two open jobs for every unemployed person.
- University of Michigan Consumer Sentiment was revised down to 50.0 (from a preliminary reading of 50.2) in June – a record low for the index.
- The consumer expectations subindex reached lows not seen since May of 1980 (47.5), and the current economic conditions subindex set a new all-time low of 53.8 this month, dropping precipitously from May’s reading of 63.3.
- 5-year inflation expectations broke above 3.0% for the first time since January. While June’s reading of 3.1% wasn’t dramatically elevated, 3.0% has been a relatively important barometer for long-term inflation expectations.
- Unanchored inflation expectations can have sticky, self-fulfilling effects, so monitoring this measure will continue to be important going forward.
How do Unemployment and Consumer Sentiment impact you?
- As mentioned last week, maximum stable employment is the second critical piece of the Fed’s dual mandate, in addition to price stability. While keeping unemployment down is important, the historically low levels supported by last week’s data have this objective taking a back seat to wrangling inflation.
- Chairman Powell’s own comments following the most recent meeting seemed to both recognize the extreme labor market tightness and suggest a willingness to sacrifice lower unemployment to meaningfully address inflation.
- Record low consumer sentiment, as reported even by the slightly higher, preliminary reading of the University of Michigan Index, was worrisome enough for Fed officials to raise interest rates 75 basis points for the first time since 1994.
- Consumer sentiment is closely tied to gasoline prices, and a material decline in the cost to fill the tank should go a long way in improving consumer outlook.
A LOOK FORWARD
- A significant week of data releases lies ahead, highlighted by gross domestic product (GDP) and the Fed’s preferred measure of inflation, Personal Consumption Expenditure Price Index (PCE).
How do GDP and PCE inflation impact you?
- Rising interest rates have both the Fed and influential market participants like big banks and research shops cutting GDP forecasts, so monitoring the feed through to final data will be critical. Should the PCE reading for May confirm the hot CPI report, the Fed will likely feel further emboldened in its aggressive action to tame inflation.
|Market Index Returns as of 6/24/221||WTD||QTD||YTD||1 YR||3 YR||5 YR|
|Dow Jones Industrial Average||5.39%||-8.69%||-12.43%||-6.09%||7.90%||10.45%|
|Russell 2000 (Small Cap)||6.02%||-14.45%||-20.88%||-23.45%||6.20%||5.88%|
|MSCI EAFE (International)||2.83%||-13.26%||-18.39%||-17.46%||1.65%||2.45%|
|MSCI Emerging Markets||0.80%||-10.73%||-16.95%||-24.21%||0.94%||2.37%|
|Bloomberg Barclays US Agg Bond||0.61%||-5.32%||-10.94%||-10.68%||-1.10%||0.63%|
|Bloomberg Barclays High Yield Corp.||0.57%||-8.17%||-12.61%||-10.89%||0.79%||2.54%|
|Bloomberg Barclays Global Agg||1.01%||-8.29%||-13.94%||-15.33%||-3.20%||-0.62%|
- U.S. equities bounced back with the S&P up +6.46%.
- Small caps also surged but underperformed their large cap counterparts up +6.02%.
- International stocks lagged domestic equities, but still in the green up +2.83%.
- Emerging markets were slightly positive returning +0.80%.
- U.S. investment grade bonds were positive with the Bloomberg Barclays U.S. Aggregate Bond index up +0.61%
BY THE NUMBERS
STILL MADE SOME MONEY – The S&P 500 has suffered 2 “bear” markets since the beginning of the pandemic, i.e., in just the last 30 months. However the S&P 500 has gained +20.4% (total return) from the close of trading on 2/19/2020 (at the peak for stocks before the first “bear” began) through last Friday 6/24/2022 (8 days after the second “bear” bottomed). The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. It is a market value weighted index with each stock’s weight in the index proportionate to its market value (source: BTN Research).
HALF OWNED BY JUST ONE PERCENT – The top 1% of American households own 53.9% of equities in the United States as of 12/31/2021, through direct ownership of individual stocks or through pooled funds (e.g., mutual funds) that invest in the stock market (source: Federal Reserve).
ALMOST NOTHING – The bottom 50% of American households own just 0.6% of equities in the United States as of 12/31/2021, through direct ownership of individual stocks or through pooled funds (e.g., mutual funds) that invest in the stock market (source: Federal Reserve).
A RECORD TOTAL – As of 3/31/2022, US single-family homes were worth $39.0 trillion, outstanding mortgages totaled $11.2 trillion, resulting in $27.8 trillion of home equity, an all-time record (source: Federal Reserve).
Reprinted with permission from BTN. Copyright © 2021 Michael A. Higley.