Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
The major averages were lower last week following a big selloff on Thursday and Friday. The S&P 500 and Nasdaq were both down for a fifth-straight week, the longest streak for the S&P since 2011 and Nasdaq since 2012. The selloff has hit some groups particularly hard, including high-valuation stocks and growth in general.
The S&P 500 started the week with three-straight gains, hitting a high after Wednesday's FOMC meeting. However, a big selloff on Thursday and Friday pushed the major averages lower. There wasn't one catalyst to the selloff, but stocks certainly suffered from a big and rapid backup in yields. The yield on the 10-year US Treasury spiked 24 basis points, finishing the week solidly above 3% and at the highest levels since late 2018.
The May FOMC meeting ended with a 50 basis point rate hike, as expected, while the Fed also announced the start of the balance sheet drawdown, starting in June. The hike was the largest in 22 years and an escalation in the Fed’s fight to bring down prices. The central bank’s goal is to slow the economy enough to bring prices down, but without causing layoffs or recession. This is known as a "soft landing." The highlight of the meeting was Chair Powell essentially ruling out 75 basis point hikes in the coming meetings, saying that 50 basis point hikes will be on the table for the next several meetings.
The April jobs report released on Friday was mostly positive. Monthly payroll gains came in better than expected, though there was some focus on the dip in the participation rate. The participation rate is a key measure of worker engagement and is particularly interesting to economists given then there are currently 11 million open jobs in the United Sates. The unemployment rate was unchanged at 3.6 percent, remaining at a multi-decade low.
This week’s economic calendar is relatively light. We have Wholesale Inventories on Monday. On Wednesday, we get Mortgage Applications and the week’s most anticipated data release, the Consumer Price Index, or CPI, which is a popular measure of inflation. Investors are hoping to see CPI decline from its 4-decade high of 8.5 percent. We finish the week with the Producer Price Index on Thursday and the Import Price Index and the University of Michigan Sentiment report on Friday.
As always, will be watching and reporting back to you next week. Thank you.
