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Equities Slip as Investors Assess Fed’s Path Forward
Equity markets fell to start the second half of the year as Fed meeting minutes and mixed labor market data were digested by investors. Global equities (represented by the MSCI All Country World Index) were down -1.32%, and domestic stocks (represented by the S&P 500 Index) were down -1.11%.
Federal Open Market Committee
Minutes from the last Federal Reserve policy meeting showed a unanimous decision to keep rates steady for June. However, some nonvoting members favored an increase for this meeting, and many participants expect additional increases this year. The FOMC raised rates in 10 consecutive meetings prior to June.
US Treasury Yield
Worries over more interest rate hikes sent US Treasury yields higher. The 10-year yield eclipsed 4%, the highest level since March, while the 2-year note rose to 5%. The 10-2 year yield curve remains inverted and now has been for over a year.
Labor Market
The US economy added 209,000 nonfarm payrolls in June, missing expectations of 230,000. While the job additions showed potential softening in the labor market, average wages remained elevated rising 4.4% year-over-year. The unemployment rate slipped to 3.6% from 3.7% the month prior.
Consumer Price Index
This week the Consumer Price Index will be reported and show if the moderation of inflation continued into June. Headline CPI rose 4.0% in May, falling from 4.9% the month prior. Q2 earnings season also kicks off this week as major banks are among the first to report their results. According to FactSet, analysts are expecting an average decrease in earnings of 7.2% for S&P 500 companies which would be the largest decline since the second quarter of 2020.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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