US stocks fell by 2.76% for the week. Stocks were actually up after the Wednesday close by about 1.5%, but that is when Fed Chair Powell pretty much much promised a half-point increase at the next meeting on May 3-4. And then St. Louis Fed President James Bullard started talk of a 3/4 point rate increase, although said he prefers a series of half-point increases. Maybe the back to back comments were enough to jar investors into believing what the Fed has more or less been saying for weeks, that much higher rates are on the way. The market would then fall by almost 4% on Thursday and Friday.
The Fed-funds futures market is looking for 1/2 point next month, and 3/4 of a point for the June meeting, and then 1/2 point in late July. That increased the 2-year note by 27 basis points to 2.71%.
PMI reports are indicating a slight slow down in economies around the world The composite PMI for the US came in at 55.1, down from 57.7 in March. It was the lowest reading in three months. Services took the brunt of the hit, down to 54.7 from 58 while manufacturing was strong, rising to 59.7 from 58.8, the highest reading in seven month.
Overseas, Europe’s biggest economy, Germany, reported a drop in the composite PMI to 54.5 in April from 55.1 in March.
The job market is still strong, weekly jobless claims was less than 200,000 for the ninth consecutive week. The job market hasn’t been this strong since 1969. Housing starts are also strong, permits for new homes is 6.7% higher from one-year ago.
US stocks fell by 2.1% as worries about the war in Ukraine, inflation, Fed tightening, higher interest rates, and lower profit margins dragged on the market. International markets were off by 1.18% and bonds dropped by 1.23%.
The Producer Price Index (PPI) was up by a record 11.2% in March, year over year. Vegetables were up by 82%, grain by 40%, meat and fish by 23%.
The Consumer Price Index (CPI) was up by 8.5% in March compared to the previous year, the biggest increase since 1981. Higher gas prices fueled by Russia’s invasion of Ukraine caused most of the damage.
The debate is on as to if the economy is booming or busting, or maybe both at the same time.
Airlines have been booked solid this holiday weekend without pushback on higher fares, according to the President of Delta.
Consumer sales are up, but not in real (inflation-adjusted) terms.
Lower-income households are using their credit cards more, indicating they may be struggling with higher prices. Households with incomes under $50,000 spent more on their credit cards on utilities, gasoline, and food.
Trucking activity indicates a slow-down in activity.
Hourly earnings are showing the strongest gains among lower income groups.
Stephanie Pomboy of Market Mavens says that a $41.8 billion surge in consumer credit in February signals that consumers are “now are resorting to desperate measures.”
Markets fell this week on worried about an economic slowdown and a more aggressive tightening by the Fed.
Just about everyone at the Fed is talking about tightening quickly. Lael Brainard, the Fed governor awaiting Senate confirmation said the central bank needs to shrink its balance sheet “rapidly.” In a release of the Fed’s minutes from last minutes, officials spoke about reducing the balance sheet by $95 billion per month. That led to a rise in the yield of the 10-year to 2.72%, up 32 basis points for the week, while the 2-year was just up a few basis points to 2.53%, thereby opening up a positive spread between the 10-year and the 2-year.
Stocks rallied by 0.21% in the US and by 0.89% outside the US. Bonds were up by 0.76% as interest rates on the 10 and 30-year bonds dropped.
The US added half a 430,000 jobs in March and February was revised up to 750,000. The unemployment rate fell to 3.6%. Interest rates rose on the news as the numbers reflect a strong job market. Average hourly earnings were up 5.6% from one year ago. The labor force participation rate increased to 62.4%
But while the jobs report looked good, the Institute for Supply Management’s Purchasing Manger Index (PMI) has been slipping. The March number came in at 57.1%, down from 58.6% in February (above 50 is considered expansionary). The new-order index was 53.8%, a sharp drop from 61.7% in February.
Biden said he would release one million barrels a day from the strategic reserve for six months to try to lower gasoline prices. Another bad move as that oil should be saved for when we really need it.
Amazon workers in Staten Island voted to form a union.
Most economists see a 1 in 3 chance of a recession in the next 12 to 18 months due mainly to the Fed’s not so great record in the past of avoiding recessions when hiking rates.