Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
Last week U.S equities finished lower, with the Dow Industrial Average recording its worst week since last October. Growth outperformed value by a considerable margin, a reversal of the trend that has been in place since the beginning of the year. Bank stocks were hit especially hard as longer-term rates declined as short-term rates rose, also known as a flattening of the yield curve, which deters banks from lending.
The selloff started after the Federal Reserve moved up its forecast for interest rate hikes, saying it expects to start in 2023. This is a clear acknowledgement that the economy is recovering more quickly than the Fed predicted just a few months ago and that inflation pressures are mounting.
In their meeting the Fed voted to keep the fed funds rate unchanged, as widely expected. They also began conversations about the tapering of bond purchases and they maintained their stance that inflation will be transitory.
The yield on the 10-year US Treasury declined to end the week down 12 basis points, finishing at 1.43% on Friday. The dollar index strengthened against major peers showing the largest gains since September of 2020. Gold lost almost 6%, while oil improved 1.2%, its fourth consecutive week of gains.
With respect to domestic Covid-19 vaccination progress, the U.S. continues to trend in the right direction with cases declining and vaccinations on the rise. About 53% of the U.S. population has received at least one dose, and 45% have been fully vaccinated. Since the start of the pandemic, 10% of the U.S. population has been infected with the virus as we continue to strive for herd immunity.
Last week’s economic calendar had some interesting data points for investors. The producer price index rose 0.8% month-over-month, adding to global inflation concerns. This is a 6.6% year-over-year advance in the reading, the largest since 2012.
Retail sales declined by 1.3% in the month of May, lower than expectations amid stimulus-fueled demand by consumers in the prior months. Housing starts increased by 3.6% in May, and building permits declined by 3%. The decline in building permits is likely due to increased materials costs and a shortage of qualified labor.
In the week ahead we receive plenty of note-worthy economic data as we look to close out the end of the first half of 2021. We start with existing home sales on Tuesday, then we get new home sales and a slew of PMI data on Wednesday. On Thursday we get durable goods orders and the final read of first quarter GDP, expected to remain at 6.4%. Then we finish up on Friday with personal income and personal spending.
As always, will be watching and reporting back to you next week. Thank you.
