Weekly Market Commentary -6/10/2022

-Darren Leavitt, CFA

Global growth concerns were raised throughout the week on multiple fronts. Central bank policy from the Eurozone, India, and Australia promoted tighter monetary policy. Higher fuel prices stoked fears of inflation and demand destruction as WTI traded at over $123 a barrel while the national average price of gasoline in the US hit $4.92, a new record. Warnings on the macro environment from Intel were complimented with renewed concerns on profit margins from Target and Union Pacific. An abrupt turnaround in lockdown measures in China reintroduced apprehensions about the supply chain. Economic data showed higher than expected inflation, a tight labor market, and a consumer worried about the economy.

The S&P 500 lost 5.1% for the week after breaking support of the May lows at 4077.33. The Dow lost 4.6%, the NASDAQ fell 5.6%, and the Russell 2000 gave up 4.3%. US Treasuries also suffered losses, with a significant flattening of the curve. The 2-year note yield increased twenty-two basis points to 3.04%. The 10-year yield increased eleven basis points to 3.16%, just shy of 3.2% seen in early May. Of note, the 3-year and 5-year yields are currently higher than the 10-year and 30-year yields, causing an inversion across that part of the curve. Oil prices closed 1.2% higher or $1.52 at $120.74 a barrel. There was news out that the Saudis had raised prices in Asia because of increased demand. Gold prices increased by $24.40 or 1.3%, to close at $1875.30 an Oz. The dollar strengthened against the Euro and Pound while hitting 20-year highs with the Japanese yen.

The May Consumer Price Index pushed back on the peak inflation narrative in a big way. The headline number came in at 1%, higher than the consensus estimate of 0.7% and well above the prior reading of 0.3%. The year-over-year figure showed an increase of 8.6% relative to the previous figure of 8.3% and is the highest reading in 40 years. The Core number, which excludes food and energy, was a bit better, coming in line with estimates of 0.6%. The year-over-year figure was 6% relative to the prior reading of 6.2%. A look at the components of CPI offered minimal cover for those looking for price moderation. After the data hit the tape, the markets sold off materially, and Fed Funds Futures immediately priced another fifty basis point rate hike by the Federal Reserve in September. The preliminary reading of the University of Michigan’s Consumer Sentiment Index for June came in at 50.2 versus expectations of 59. A year ago, the reading was north of 89. This is the lowest sentiment reading since 1978 and another primary concern for the market. The labor market continued to be tight. Initial claims were up 27k to 229k. Continuing claims were unchanged at 1.306m. MBS weekly Mortgages were down 6.5%, showing a slowdown in new applications and refinancing.

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