Author: Wendy Huang

Wendy Huang

Financial News and Portfolio Management Discussion through June 18th

US stocks wrapped up their worst week since 2020 as an aggressive Fed rate increase has fueled recession fears. The S&P 500 dropped 5.8% for the week and the Dow ended the week 4.8% lower. Foreign markets also declined sharply for the week with the FTSE All World Ex US falling 5.6% for the week. US crude declined to end the week at $109.56 per barrel down from $120.67 the week prior. The yield on the 10-year Treasury increased to 3.24% up from 3.16% the week prior.

The Fed approved the largest rate increase since 1994, increasing its benchmark federal funds rate by 0.75% to a range between 1.5% and 1.75%. New projections show expectations are the Fed will raise rates to at least 3% by the end of the year. Mr. Powell said he doesn’t expect moves of this size to be common but indicated a 0.5% to 0.75% increase seemed most likely at their next meeting in July. This increase raises the rate to its level from early March 2020, before the Fed slashed it to near zero due to the Covid-19 pandemic.

US consumers pulled back spending in May. Spending on retail and services fell 0.3% for the month, below the 0.1% gain expected.

Rates for a 30-year fixed-rate mortgage surged to 5.78% moving up more than 0.5% in a week. The weekly increase was the largest since 1987.

The U.K. economy shrank for the second straight month in April, as high levels of inflation reduced consumer spending and stimulus programs wound down.

The Bank of England raised its key interest rate by 0.25% from 1% to 1.25%. The increase was the fifth consecutive and the central bank indicated larger moves might be warranted to get inflation under control.

Financial News and Portfolio Management Discussion through June 11th

US stocks experienced their worst week since January as inflation data came in higher than expected and indicated inflation has yet to peak. The S&P 500 fell 5% for the week and the Dow ended the week 4.6% lower. Foreign markets were also negative for the week with the FTSE All World Ex US declining 3.4% for the week. US crude gained slightly ending the week at $120.67 per barrel up from $120.27 the week prior. The yield on the 10-year Treasury jumped to 3.16% up from 2.94% the week prior.

Headline CPI increased 8.6% in May from the same month a year ago, higher than the expected 8.3% and marking its largest increase since December 1981. Core CPI was up 6%, slightly higher than the 5.9% estimated, but lower than the 6.2% increase in April. May marked the largest differential between Headline and Core CPI in the last decade.

The ECB laid out plans to increase its key rate, for the first time in more than a decade, by a quarter percentage point to minus 0.25% at its July meeting and increase it again in September, possibly by a larger amount. The ECB will also end its large-scale bond-buying program on July 1. After September, the ECB said it expects a series of further gradual rate increases.

Chinese exports surged in May as Covid-19 restrictions eased, adding to signs of recovery in the Chinese economy.

May Market Commentary

Market Commentary

US Stocks were relatively flat in May as positive economic news eased recession fears. Earnings for S&P 500 companies continue to be strong, but many companies issued profit warnings for future quarters driving recession fears. Economic news was positive over the month. US employers added 428,000 workers to their payrolls in April, above the estimated 395,000. The unemployment rate held steady at 3.6% in April. Wage growth slowed slightly, increasing 0.3%, below forecasts for a 0.4% gain. US retail sales rose for a fourth consecutive month, up 0.9% in April compared to March. Industrial production increased by 1.1% in April for a fourth straight month of gains. CPI increased by 8.3% in April, slightly higher than the expected 8.1%, but lower than the 8.5% increase in March. The personal consumption expenditures index, the inflation gauge the Fed prefers, also showed signs of easing. The index was up 0.2% in April and 6.3% from a year earlier, compared to March which was up 0.9% monthly and 6.6% annually. The producer price index rose 0.5% in April as expected, a reduction from the 1.4% increase in March. US housing sales declined for a third straight month as record home prices and rapidly rising mortgage rates cool down the housing market.

Foreign stocks were positive for the month driven by strong performance from European stocks. In a sharp pivot from previous statements, the European Central Bank (ECB) president stated the ECB would likely increase its key interest rate from -0.50% to zero by September and could keep raising rates after that. The ECB suggested it could raise its key rate by 0.25% at each of its next seven meetings, reaching a level of 1.25%. The eurozone’s headline inflation rate hit 7.4% in April, slightly lower than March’s 7.6%. China’s CPI increased by 2.1% in April from a year earlier, slightly above the expected 2% increase. The increase was the biggest jump in five months, accelerating from March’s 1.5% increase. Chinese retail sales declined by 11% in April from a year earlier, it was the second straight month of declines and the largest contraction since March 2020. Oil prices ended the month at $114.67, up 9.53% for the month. Emerging markets have trailed developed markets in May, the year to date, and over the trailing twelve months.

Interest rates fell in May pushing bond prices up for the month. The Fed increased its benchmark rate by a half percent, the largest increase in over two decades, and plans to reduce its asset portfolio. Fed officials broadly agree that additional half percentage point increases may be warranted in upcoming meetings. The Fed plans on shrinking its asset holding passively by allowing bonds to mature without reinvesting the proceeds into new securities rather than by selling them in the open market. The yield on the 10-year Treasury fell in May to 2.84% from 2.89% in April. The average rate for a 30-year fixed mortgage has risen to 5.1%. Municipal bonds were the top performers for May and year to date. Longer term bonds outpaced shorter term bonds for the month, but shorter term bonds topped longer term bonds for the year to date.

 

Index PerformanceMayYear to DateTrailing 12 Months
US Stocks (Russell 3000)-0.13%-13.89%-3.67%
Foreign Stocks (FTSE AW ex US)0.66%-10.28%-11.48%
US Bond Mkt. (BBgBarc Int. Gov/Cred)0.74%-5.72%-6.14%
Municipal Bonds (BBgBarc 1-10 Yr Muni)1.36%-4.68%-4.50%
Cash (ICE BofA ML 3-Mo T-Bill)0.07%0.12%0.14%

Financial News and Portfolio Management Discussion through June 4th

US stocks ended the week lower as a strong May jobs report may indicate the Fed will continue its aggressive path to get inflation under control. The S&P 500 declined by 1.2% for the week and the Dow ended the week 0.9% lower. Foreign markets posted another positive week with the FTSE All World Ex US up 0.4% for the week. US crude gained for the week ending at $120.27 per barrel up from $115.07 the week prior. The yield on the 10-year Treasury increased to 2.94% up from 2.74% the week prior.

US employers added 390k jobs in May, beating the 325k economist had forecasted but fell short of the 436k added in April suggesting US job growth may be cooling. The unemployment rate held steady at 3.6%, remaining near historic low levels. Wage growth slowed slightly, increasing 0.3%, below forecasts for a 0.4% gain.

Fed officials said they would support raising rates in half-percentage- point increments for the next two meetings and batted down speculation that they would pause after that.

The national average price for gas in the US hit $4.67 to start June, up $1.63 from a year earlier.

Inflation in the eurozone reached an annual 8.1% in May marking a sharp acceleration from the 7.4% rate of inflation recorded in April and March. Russia’s invasion of Ukraine and sanctions placed on Russia have been the main drivers of price increases.

The Bank of Canada raised its benchmark interest rate by a half-percentage point and signaled it is prepared to consider bigger rises if necessary to combat high inflation.