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Equities Fall in Shortened Trading Week
Equity markets broke their winning streak in the shortened trading week as investors weighed potential future interest rate increases by the Federal Reserve. Global equities (represented by the MSCI All Country World Index) were down -2.18%, and domestic stocks (represented by the S&P 500 Index) were down -1.37%.
The Federal Reserve
While speaking before Congress last Wednesday and Thursday, Fed Chair Jerome Powell stated that there is still “a long way to go” to bring inflation down to their long-term target of 2%. Although rates were kept unchanged this past meeting, most policymakers expect at least two more 0.25% rate increases this year. However, markets are currently pricing in a target rate of only 5.25-5.50% for the December meeting according to CME’s FedWatch Tool, which would only include one 0.25% rate hike.
In a relatively light week for economic data, Friday’s S&P Global gauge of US manufacturing activity fell back to its lowest level since December and missed consensus estimates. While input prices have been falling, investors worry about weakening demand and slowed future growth in the space.
Housing sector data came in surprisingly high for the month of May as US housing starts jumped over 20% from the previous month and to the highest level since April 2022. Existing home sales also ticked up slightly from April following two months of declining sales.
While the US and other countries assess the pace of interest rate hikes and slowdown in policy, the Bank of England unexpectedly lifted their key benchmark rate by 0.50% last week. This brought their rate to 5.0%, the highest level since 2008 as they continue to fight persistent inflationary pressures.
Personal Consumption Expenditures
This Friday the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, will be released for May. April’s release showed a slight reversal of the downward trend that started in July 2022. Headline PCE rose at an annual rate of 4.4% in April compared to 4.2% in March.
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.