The major indexes failed to maintain the previous week’s positive momentum as the S&P 500 and the NASDAQ slipped around 1% and the Dow fell nearly 2%. Stocks declined sharply on Thursday amid growing concerns about tightening monetary policy. Aretha Franklin was in the news this week as her sons are going to court to argue over her estate almost 5 years after her passing. I have broken down this week’s update using songs from the aforementioned Queen of Soul.
Ain’t No Way
Sure ain’t no way for the market can keep predicting the Fed is done with the rate hikes. That’ because Wednesday’s release of minutes from the U.S. Federal Reserve’s mid-June meeting reinforced what I have been saying that we’re likely to see further interest rate increases. The minutes showed that a majority of Fed officials expected there would be a need for further hikes, and some non voting members wanted to continue raising rates at their June meeting. Renewed worries about the outlook for more interest-rate increases sent yields of U.S. government bonds higher for the second week in a row and was a large reason stocks were down this week.
Don’t Play That Song
A strong labor market means more runway for the Fed to raise rates. The market does not want that, which is why we had a big drop on Thursday after the ADP jobs report came in much stronger than expected. On Friday, we found out the unemployment rate slipped to 3.6%.and more importantly average hourly wage gains continue to remain elevated at 4.4%, versus expectations of 4.2%. The Fed would like to see wage growth head toward 3.5% to remain consistent with a 2.0% inflation target. So increasing wage growth is not the song the market wants to hear.
Until You Come Back to Me
The major oil-producing countries continue to cut supply counting on demand eventually coming back. The moves have provided a lift for oil prices for the second week in a row. U.S. crude was trading at nearly $74 per barrel on Friday, up more than 4% for the week and almost 7% higher than its price a couple weeks earlier.
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