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Last Week on WallStreet - June 19
What Happened
Markets retreated last week as traders tried to price in where monetary policy is headed in the coming months. Investor sentiment began to wane as policymakers on Wednesday signaled sooner than expected rate hikes and the possibility of tapering on the horizon. The VIX, or fear gauge, climbed to its highest level since late May. The reflation trade, which has been a major theme in markets throughout the year, lost steam as Financials (-6.3%), Materials (-6.2%), and Energy (-5.4%) lagged. Technology (+0.04%) was the only sector in the green.
- The Fed sees risks of higher inflation
- Retail sales slipped last month
- The housing market continues to cool
- Jobless claims rose unexpectedly
- Interesting articles from the Waterloo Watercooler
Greg Robb - MarketWatch
Fed, Alert to Risks of Higher Inflation, Now Sees Two Interest Rate Hikes in 2023
In response to the growing risk of inflation, the Federal Reserve said on Wednesday it might increase interest rates earlier than it had previously expected, now looking at two rate hikes in 2023. The Fed supplemented this by reiterating their sentiment that the recent burst of inflation would only be temporary, but Fed Chairman Jerome Powell did say they were attuned to the risk that inflation could rise faster and last longer than expected. The Fed also answered some questions regarding tapering its bond purchases by saying they want to see "substantial further progress" before they begin to taper. It is expected that this topic will be discussed more on a "meeting-by-meeting" basis beginning next month.
The key takeaway is that the Fed is now taking notice of the possibility of inflation after downplaying it over the course of the last few months. Traders are repricing the "reflation trade" as they watch the Federal Reserve slowly start altering its stance on monetary policy. Additionally, on Friday, St. Louis Fed President James Bullard signaled the taper discussion within the Fed is now happening. As to when the scaling back of asset purchases actually occurs remains up in the air, however.
Jeffry Bartash - MarketWatch
Retail Sales Fall in May, but US Economy is still Primed for Fast Growth
Retail sales fell 1.3% in May, larger than the forecasted 0.7% decrease predicted. It is probable that this decrease is resulting from the lack of additional federal fiscal stimulus, but overall consumers are spending much more than they were this time last year. Automotive sales fell 3.7% largely due to supply issues. On the contrary, sales at bars and restaurants increased by 1.8% as the sales are now exceeding pre-pandemic levels. Sales also rose at grocers and clothing stores.
The key takeaway is that spending has gone up and down throughout 2021 due to the influence of federal stimulus. But overall, consumer spending is quite healthy. Economists predict sales will keep going up, which bodes well for the economy as a whole. However, spending may be shifting from goods to services that were unavailable due to the pandemic such as hotels, vacation rentals, flights, and restaurants.
CNBC
US Housing Starts Rise Less Than Expected in May
US homebuilding rebounded in May, supported by a shortage of previously owned homes available for sale. House starts rose 3.6% last month to an annual rate of 1.572 million units. These increasing numbers can be reflected by the recent decreasing lumber costs, which are still extremely high comparing them to this time last year. A survey from the National Association of Home Builders showed a 10-month low in confidence among single-family homebuilders which can be attributed to “higher costs and declining availability for softwood lumber and other building materials.”
The key takeaway is that although there was an increase, the numbers were relatively disappointing again. Last year the housing market was on fire given historically low rates and families moving out of cities. Now, construction is being hampered by expensive lumber and shortages of other building materials reflected in the decrease of permits for future homebuilding. It seems people are either waiting for lower lumber prices or deciding not to build at all and contribute to the housing market boom.
Greg Robb - MarketWatch
U.S Jobless Claims Rise Unexpectedly in Latest Week
US initial jobless claims rose 37,000 to 412,000, the highest level in a month. Economists had forecast new claims to fall to 365,000. The number of people already collecting state jobless benefits, meanwhile, rose by a slight 1,000 to 3.52 million, which is the lowest level since the beginning of the COVID-19 pandemic early last year. Altogether, the number of people reportedly receiving benefits from eight separate state and federal programs totaled 14.8 million which is down about 560,000 from the prior week.
The key takeaway is that although there was an unexpected rise in unemployment last week, we are still trending in the right direction as far as the labor market goes. Enhanced unemployment benefits roll-off in September, which some believe are causing disincentives to look for a job. Federal Reserve Chairman Jerome Powell said on Wednesday that he expects a strong labor market in the coming quarter
From the Waterloo Watercooler
The TSA screened more than 2 million people at U.S. airports on Sunday, the highest number since before Covid-19 was declared a pandemic in March 2020.
Novavax offers the US a fourth strong Covid-19 Vaccine.
Roughly 18,000 borrowers who were scammed by ITT Technical Institute will have their federal student loans discharged, amounting to approximately $500 million in relief.
MacKenzie Scott announced Tuesday that she and her husband had donated $2.74B to 286 different organizations. Last year, she dispersed $6B in what is believed to be a record annual sum by a living person.
Oil prices reached their highest level in over 2 years amid increasing demand due to the overall global economic recovery.
Pitchers will be ejected and suspended for 10 games for using illegal foreign substances to doctor baseballs in a crackdown by Major League Baseball that will start June 21.
Wholesale prices jumped again in May, PPI shows, and add to rising U.S. inflation.