Economic Update 6-06-2022
- Economic data for the holiday-shortened week included a rise in manufacturing sentiment and small drop in services sentiment, despite both remaining solidly expansionary. House prices continued to increase at a dramatic pace. The May employment situation report outpaced expectations, although results were not as strong as in recent months.
- Global equity markets fell back from a steep recovery the prior week, except for emerging markets, which gained ground as Chinese lockdowns eased. Bond prices declined as the result of higher treasury interest yields. Commodities were mixed, with higher energy prices offsetting a pullback in grains.
U.S. stocks continued a back-and-forth last week, with more volatility than usual day-to-day based on economic news, anticipated impacts on the Fed, and probability of recession. More dire comments from folks such as JPMorgan CEO Jamie Dimon and Elon Musk appeared to fuel additional negativity, although with little detail provided.
By sector, energy fared best, with gains of a percent, followed by industrials, which fared positively. All other sectors were in the negative for the week, led by health care and financials. Real estate was also down over -2%, not helped by higher interest rates. Year-to-date, nearly every sector remains in the negative, with the exception of energy, which is up 60% for the period, but remains a small portion (<5%) of the S&P 500.
Foreign stocks in developed markets were down, as in the U.S., along with the same inflationary and slower economic growth pressures. Added uncertainty in recent weeks has been due to political pressures to wean off of Russian energy oil imports, although such moves are expected to exacerbate economic slowing and high inflation readings. The ECB is sounding more ‘hawkish’ as well, with hopes to pull back on easy monetary policy later this year. As in the U.S., this has become more controversial, with the economy showing further slowing pressures, but coupled with higher prices, creating a difficult policy choice. Emerging markets outperformed, however, with gains in China. There, the official end of the two-month lockdown in Shanghai was celebrated, although many citizens remain under restriction and public activity remains limited. More so, dozens of government stimulus measures boosted investor spirits.
U.S. bonds fell back as interest rates resumed their path higher, with the 10-year treasury reaching just under the 3.0% level again. This appeared to be fueled by a rise in European inflation as well as speculation about a Fed ‘pause’ in the fall after expected consecutive 0.50% rate hikes. Treasuries fared a bit better than corporates, as credit spreads widened, with floating rate bank loans the only positive-performing segment for the week. Foreign bonds generally fell back due to a stronger dollar.
Commodities continued to gain ground on the week, as positive returns in energy outpaced a pullback in agriculture, while metals were less drastically changed. The price of crude oil rose by over 3% to just under $119/barrel. The OPEC+ meeting last week resulted in an agreement to raise production to some degree, but to levels far less than hoped, with Russian output having fallen over the last few months. An overriding factor was the European Union’s push to ban 90% of Russian oil imports by the end of 2022. (The 27 countries in the EU bloc rely on Russia for 25% for their oil.) Grain prices (notably wheat and corn) fell back with Ukrainian/Russian shipments resuming to some extent. This is positive news for many nations with food security issues, notably in Africa, which imports significant amounts of grain for the region and where food shortages and high prices can be a potential source of political disruption.
|Period ending 6/3/2022||1 Week (%)||YTD (%)|
|Bloomberg U.S. Aggregate||-0.88||-9.28|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.
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