This bi-weekly financial section is published in USA Today's: The Town Journal. This publication is distributed in Bergen County New Jersey, covering 4 towns with roughly 22,000 residents.
MARKET BEARS ROAR AS MARKETS CHURN INTO JUNE.
US Markets
Last week was a shortened trading week with US markets closed in observance of Memorial Day. After the late May rally, price has been rangebound to start June. Market participates calling for a market bottom here are arguing intensely with those calling for the metaphorical end of the world. The bad news, according the Stock Trader’s Almanac, is that June is a historically weak month for stocks. It is the worst month of the year during presidential midterm years such as this one, with the S&P 500 down 1.8% on average since 1950. The good news is that there is not a person alive, or who has ever been alive, that can predict what will actually happen next with certainty.
Last week, 05/30 - 06/05, The S&P 500 closed down with a loss of 1.14%. The tech-driven Nasdaq 100 closed with a loss of 0.94%. The “blue chip” Dow Jones Industrial Average closed with a loss of 0.94%. Yes, the same performance as the Nasdaq 100. The speculative, small-cap Russell 2000 finished with a loss of 0.31%. 2 of 11 S&P 500 sectors closed higher. Those were energy and industrials. Industrials was driven higher by a 9% gain in Boeing, symbol BA, as news continued to flow in recent weeks. There have been reports of a potential order of 737s from Delta, a reusable unmanned space capsule test flight, and British Airways ordering 50 797-MAX jet planes. BA is down roughly 50% from its peak in early January.
Market Moving Headlines
In company specific news, Amazon.com Inc, symbol AMZN, continues to press higher ahead of its 20 to 1 stock split on Monday 06/06. The split was announced in March and approved by shareholders just recently. The stock is up almost 25% over the last 9 trading days, which is a massive move for the third largest company, behind Apple and Microsoft, in the S&P 500 at more than 3% of the index’s market capitalization.
In economic news, Monday 05/30.
The March S&P Case-Shiller Index, which measures housing prices, showed national prices rose more than 20% since last year and more than 2.5% since February. The official reports reads: “For the first time in nearly three years, the city with the most rapid growth in housing prices was not Phoenix. In March, Tampa led all cities with a gain of 34.8%, with Phoenix (32.4%) and Miami (32.0%) taking silver and bronze honors.”
The Conference Board released its May Consumer Confidence Index. This index is said to reflect prevailing business conditions and likely developments for the months ahead. It reports details on consumer attitudes, buying intentions, vacation plans, and consumer expectations for inflation, stock prices, and interest rates. This measure declined slightly from last month. The long-term trend is down and has been since mid-2018. While we are surely above the Covid readings, the downtrend remains intact. Recall that we reported recently, consumer credit usage is back to its pre-Covid highs and personal savings has dropped to 2013 levels.
Tuesday 05/31
The Institute for Supply Management (ISM) released its monthly Manufacturing Purchasing Manager’s Index (PMI). The main leading economic indicator in this report is the new orders data. Last month new order increased 1.6%. While this data series has been decreasing since late 2021, it remains in positive territory and speaks to future economic growth being slow and positive.
The Bureau of Labor Statistics (BLS) released its Job Openings and Labor Turnover Survey (JOLTS). Job openings fell in April from their all-time high during the prior month, and the number of those leaving their positions held near record levels. There were 11.4 million positions available at the end of April, down from the revised 11.86 million in March. It was the first decline and fewest openings since January. Hires and total separations were little changed at 6.6 million and 6.0 million respectively. This means, roughly 600,000 jobs were created during April. Over the 12 months ending in April, hires totaled 78.0 million and separations totaled 71.6 million, yielding a net employment gain of 6.4 million. Since there are 11,400,000 job openings and 5,950,000 unemployed people, that means there are roughly 1.9 job openings per unemployed person. These numbers continue to speak to the labor market being very tight, meaning the power resides with the employees and not necessarily the employers. It also means the Federal Reserve Bank will likely be emboldened by this report to continue on its trajectory of rate increases and balance sheet runoff.
Friday 06/03
On Friday, we received the highly anticipated Bureau of Labor Statistics’ (BLS) nonfarm payroll data. Above we discussed the leading indicators of housing data and manufacturing new orders. This nonfarm payroll report is considered a coincident economic indicator. This means the data changes with the economy, at the same time as the economy, instead of ahead of the economy as housing and manufacturing data tends to do. The headline number rose by 390,000 jobs in May from April when it rose by 428,000. This has been steadily increasing since the Covid low of April 2020. Total jobs came in at roughly 151 million, which is just shy of the all-time high of 152.5 million from February 2020 before Covid. When this indicator is rising, as it is, it signals confidence on the part of consumers and business. The numbers came in above estimates.
International Markets
Emerging markets closed higher and printed a 5-week high. The rest of the globe, on average, closed lower. When we zoom in, last week was all about Emerging Markets. Hungary led the gains followed by Colombia, China, and then Turkey. This year-to-date, the strength has been in Chile, Brazil, Colombia, Turkey, and Saudi Arabia. Chinese energy has also been performing very well.
Fixed Income
Bonds mostly had a losing week, though there were small pockets of buying in municipal bonds, risky leveraged loans, and emerging market bonds which closed at a 5-week high. US Treasury Bonds ended the week lower with longer duration bonds selling off harder than shorter duration bonds. While it is not a guarantee by any means, to me, the charts that speak to inflation expectations by bond market participants look poised to start a fresh leg higher. The 10 Year US Treasury closed the week higher at 2.96%.
Commodities
Last week energy and livestock commodities closed higher while metals and agriculture closed lower. Of interest to most, is gasoline. Gasoline, as a tradable commodity in the marketplace, gained almost 10% last week and printed an all-time closing high. As of Saturday 06/04, The American Automobile Association, AAA, reported the national price of regular gasoline at the pumps to be $4.819 per gallon. This has risen almost 5% since the last time we reported the average to be $4.59 per gallon just two weeks ago.
Gold closed down for the week at $1,850.20 per ounce. WTI Crude Oil closed up for the week at $118.87 a barrel. The US Dollar Index closed lower for the week at $103.17.
The Week Ahead
Next week, the important piece of economic data will be the May release of the Bureau of Labor Statistics’ (BLS) consumer inflation rate (CPI). We can expect a preliminary reading of consumer sentiment from the University of Michigan. We can also expect corporate earnings reports from companies such as The J.M. Smucker Company, Campbell Soup Company, Five Below, NIO, and DocuSign.
Key Takeaways
In the present day, until proven otherwise, any rally in the broad market indices is a counter-trend rally within the context of an existing downtrend. History has shown that these counter-trend rallies can be extremely strong and irresistibly alluring. Despite the downtrend, we also have some data in-hand that demands we keep an open mind to better-than-expected outcomes. This positive data represents a setup. Ultimately, setups need follow through in order to be actionable and prove something.
After the JOLTS, nonfarm payroll, and industrial production reports last week, US Treasury yields rose. This might mean that the bond market is anticipating the Federal Reserve to follow through and continue to raise rates to cool demand and relax the labor market. There are two types of economic forecasters, those who know forecasts are guesswork and those who do not. That said, my base-case, unless proven otherwise, for the next few months will be, generally, the continuation of US Treasury yields higher and equity prices lower with the volatility remaining elevated. Let us keep an open mind to the possibility of a wide range of possible outcomes. Let us move into next week with a flexible, unbiased, and open mind.
Comments