Author: admin

The May CPI report caused a sell-off in the markets on Friday, with the Dow Jones Industrial Average losing 880 points or 2.73 percent. The S&P 500 lost 2.91 percent, while the Nasdaq fell 3.52 percent for the day.

Almost every stock on the Dow ended up in the red on Friday. Losers outnumbered winning stocks by more than 5 to 1 on the New York Stock Exchange.

This was the 10th out of the past 11 weeks the DJIA has seen a negative return. Last week was the 9th week out of the past ten weeks that the S&P 500 and the Nasdaq lost ground, and the worst week since January.

For the week, the Dow lost 4.58 percent, the S&P 500 lost 5.05 percent, and the Nasdaq lost another 5.60 percent. For the year, the Dow is down 13.6 percent, and the S&P 500 is down 18.2 percent. Year-to-date, the Nasdaq composite is now down 27.5 percent.

The bond market is down 9.8 percent for the year. The 10-year Treasury closed the week at 3.165 percent, and the 2-year Treasury ended the week at 3.067 percent.

Oil continues its upward climb, closing the week at $120.47 per barrel for West Texas Intermediary. The national average for gas has now gone above $5 per gallon. The higher gas prices now cost Americans about $160 more per month than a year ago.

The much-anticipated consumer price index numbers released on Friday were not pretty. The report showed that inflation worsened, when it was hoped that the numbers would show inflation slowing.

The consumer price index (CPI) showed an 8.6 percent increase in prices, more than the predicted increase of 8.3 percent. That is the fastest increase since December 1981. Taking out the more volatile food and energy prices, the core consumer price index (core CPI) was 6 percent, slightly higher than the 5.9 percent estimate. The CPI was up 1 percent over last month, and the core CPI showed an increase of 0.6 percent.

Housing or shelter prices, which account for one-third of the CPI, increased 0.6 percent, the fastest one-month gain since March 2004. Shelter costs showed a 12-month increase of 5.5 percent, the most since February 1991.

Energy prices increase 3.9 percent from a month ago, for an annual gain of 34.6 percent. In the energy category, fuel oil showed the biggest gain of 3.9 percent over a month ago, bringing the annual increase to 106.7 percent.

And, as if we didn’t already know, food prices increased another 1.2 percent in May and a year-over-year gain of 10.1 percent.

These numbers mean that workers took another pay cut during April since inflation cuts into paychecks. When accounting for inflation, real wages dropped 0.6 percent in April, even though the report showed that the average hourly earnings rose 0.3 percent. According to the Bureau of Labor Statistics, real average hourly earnings were down 3 percent on a 12-month basis.

Last Friday’s CPI report cooled off hopes that inflation had peaked already and increased fears that a recession is next for the U.S. economy. The report makes it almost a certainty that the Federal Reserve will raise rates another 50 basis points at their next meeting in June.

The Atlanta Fed GDPNow Tracker predicts an annualized gain in the GDP of 0.9 percent for the second quarter, raising fears that it could be worse and lead to a recession. Because of the surprising 1.5 percent drop in GDP for the first quarter, the second quarter could easily come in negative.

On Thursday, the initial jobless claims jumped to their highest level since mid-January. First-time unemployment filings for the week ending June 4 came in at 229,000, with an increase of 27,000. Despite the rise, the employment picture is still strong, with the four-week moving average at its lowest level since January 10, 1970.

Mortgage rates jumped again last week ahead of this week’s Federal Reserve meeting. The average 30-year mortgage climbed to 5.23 percent, up from 5.09 percent last week. A year ago, at this time, the average rate was 2.96 percent.

With the absence of any major news, the stock market was a little less volatile this past week. The markets closed down for the week amid continuing worries about inflation and how aggressive the Federal Reserve will be.

Even with a positive jobs report on Friday, the stock market dropped. The Dow Jones Industrial Average lost 1.1 percent, the S&P 500 fell 1.6 percent, and the NASDAQ lost another 2.5 percent Friday.

For the week, the Dow lost 0.9 percent, the S&P 500 fell 1.2 percent, and the NASDAQ dropped 1.0 percent. These indexes continue to be down for the year, with the DJIA down 9.5 percent, the S&P 500 down 13.8 percent, and the NASDAQ down 23.2 percent.

In other markets, West Texas Intermediary crude oil climbed higher last week to close at $120.26. The spot price for gold was down $17.70 to close at $1,853.70 per ounce. Bonds closed at $102.77, down another 1.3 percent for the week and now down 9 percent for the year.

The May jobs report came out better than expected, with the U.S. economy adding 390,000 jobs in May. This is good news considering recession fears due to rising inflation. The unemployment rate stayed at 3.6 percent, which is just above the lowest level since December 1969.

Economists had expected nonfarm payrolls to increase by 328,000 for May. The total job number for May was lower than the revised 436,000 in April, making this the lowest monthly gain in jobs since April 2021.

Despite the good job numbers, total employment remains 440,000 below the pre-Covid level. Labor force participation rose slightly to 62.3 percent, which is 1.1 percent below pre-pandemic levels in February 2020.

The job market continues to be healthy in spite of recession fears, which some say could cause hiring freezes. Hiring is running at more than double the pace that it was in 2018, the last time the Federal Reserve raised rates.

The average hourly earnings increased 0.3 percent from April, which is a little less than the 0.4 percent that was estimated. The year-over-year wage increase of 5.2 percent is in line with expectations.

The good job report could be a sign that there will be no recession in the near future. Good employment numbers are good for consumer spending. And no recession in the last 50 years, other than the pandemic recession, has ever begun with an unemployment rate that was below 4 percent.

The labor market remains tight, with almost two job openings for every unemployed person. The ratio of unemployed people to job openings is 0.5. This ratio was well above 1 when looking back at the recessions of 2001 and 2007.

The Institute for Supply Management Services Index (ISM) report came out at 55.9, down from April’s 57.1. That is lower than the estimate of 56.5, but it still shows expansion. A reading above 50 shows an expansion in activity.

After dropping for the past three weeks, mortgage rates jumped last week. The 30-year fixed mortgage hit 5.36 percent last Monday and climbed to 5.47 percent on Tuesday. The current rate for a 30-year fixed-rate mortgage is around 5.39 percent.

Applications for mortgages continue to drop, down 1 percent last week compared to the previous week. Mortgage demand is now at the lowest level since December 2018. Volume is now 14 percent lower than the same week one year ago.

Even though there are fewer mortgage applications, home prices continue to rise because of the continuing low supply of homes on the market. Of course, those buying homes with all-cash offers aren’t applying for mortgages.