Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
Last week, U.S. stocks failed to make gains for a second consecutive week, with the major indices seeing declines of about 1 percent. The yield on the 10-year Treasury reversed course, moving higher, finishing the week at 2.94 percent. The dollar was stronger, gold was down and WTI crude finished higher by over 3 percent.
Last week provided markets with plenty of interesting economic data releases. The biggest, of course, being the May payrolls report, which came in better than expected. The report showed 390 thousand jobs added last month, while average hourly earnings growth of 0.3 percent was in line with estimates. The unemployment rate remained unchanged at 3.6 percent, just above the lowest level since December 1969.
Job gains were broad based, led by leisure and hospitality. Retail sales saw the biggest declines, losing a little over 60 thousand jobs in May. Despite the job gains over the last year, the labor market has yet to recover all the positions lost during the pandemic. Total employment remains 440 thousand below the pre-Covid level.
Markets are shifting into "good news is bad news" mode, particularly after the better May payrolls number. At first glance, one might think a good jobs report would be positive for stocks, but instead equities fell because it will potentially motivate the Fed to raise rates at a quicker pace to cool the economy down.
The economic calendar is relatively light this week. The two most anticipated reports come out on Friday, the Consumer Price Index (CPI) and the Consumer Sentiment report. May’s CPI is expected to be just slightly less than April, and many investors are hoping that it could confirm that inflation has peaked.
Despite considerable optimism that inflation is slowing, the current pace is still around the fastest we have seen in 40 years. Prices at the gas pump, specifically, are at historical highs. The national average for a gallon of regular unleaded is at $4.76, up 13 percent from a month ago and up more than 56 percent from a year ago, according to AAA. The reopening of China following a strict Covid lockdown, and the European Union’s partial ban on Russian oil imports, which was approved last Thursday, is also adding to the upward pressure on energy prices.
As always, we will be watching and reporting back to you next week. Thank you.