Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank
Major U.S. equity benchmarks finished higher for the week, after recording their worst week since February in the week prior. The Nasdaq gained by 2.4%, the Dow Jones Industrial Average gained 3.4%, the S&P 500 gained 2.7% and the Russell 2000 rose 4.3%. Major themes surrounding the week included infrastructure bill progress and less hawkish commentary from Federal Reserve leadership. The U.S. 10-year treasury yield ended the week at 1.52%, up 8 basis points from the previous Friday’s close. Gold gained 0.5% and West Texas Intermediate Crude Oil gained 4%.
President Biden said on Thursday that the White House had reached a deal with a bipartisan group of senators on infrastructure stimulus. The $1.2 trillion framework includes $579B in new spending largely focused on traditional infrastructure such as roads and bridges. Funding will come from increased IRS enforcement, unspent Covid relief funds, and a variety of other sources, but not tax increases or indexing the gasoline tax to inflation. There remains a healthy dose of skepticism about the prospects for passage. This was largely a function of the insistence on the part of progressives, Democratic leadership, and the White House that the Senate also pass a separate package via reconciliation that includes Democratic priorities surrounding climate change and human infrastructure.
Comments from members of the Federal Open Market Committee received attention following the hawkish takeaways from the previous week's Fed developments, particularly the shift forward to 2023, from 2024, in the dot plot of expected Fed Fund rate hikes. Fed Chair Powell said once again that the central bank will not raise rates preemptively because it fears the possible onset of inflation, while New York Fed President Williams said data and conditions have not progressed enough for the Fed to shift its policy stance. Additionally, both Powell and Williams reiterated the Fed's view that price pressures will remain transitory.
The domestic economic calendar last week showed existing home sales were stronger than expected, but still down 0.9%. This is a decline for the fourth straight week. The median selling price rose to $350,300 for the month of May, a 23.6% increase year-over-year. New home sales dropped 5.9% despite expectations for an increase. Shipping bottlenecks and higher prices have been a major headwind for builders. Personal spending was stagnant in May, and personal income declined by 2%. With increasing vaccinations levels, spending on services in coming months should move towards pre-pandemic levels. Lastly, the GDP Price index and annualized GDP quarter-over-quarter data was released and both were very strong and in line with expectations of 4.3% and 6.4% growth, respectively.
In the week ahead, we will be watching consumer confidence numbers that are expected to increase after hovering around historically elevated levels last month. Pending home sales are due which are expected to decline for the second month amid elevated home prices. Later in the week we will get information on the manufacturing industry with readings from the ISM Manufacturing index which is expected to decline slightly following May’s reading which saw its highest reading since 1997. Finally, we will see data on the jobs front from the Bureau of Labor Statistics where the unemployment rate is expected to decline slightly to 5.7% amid expiring unemployment benefits.
As always, we will be watching and reporting to you next week. Thank you.
