Market Monitor: June 24, 2022, Update
Headlines and Highlights
- Powell touts economy’s strength while acknowledging risks: Federal Reserve Chair Jerome Powell told a congressional committee the U.S. economy remains strong and consumers and businesses are in “good shape” despite the impact of inflation and higher rates. He said the challenge of steering the economy to a so-called soft landing has become more difficult in recent months because of global events outside the Fed’s control.
- Stocks edge up from bear-market lows: U.S. stocks logged a positive trading week after the 2022 downturn left the S&P 500 down more than 23% from the January all-time high a week ago. International stocks were largely flat this week. Benchmarks for both taxable and tax-exempt bonds ticked higher as yields declined but remained down heavily for the year.
- Job market solid but may be starting to cool: The number of Americans filing new claims for unemployment benefits has crept higher since March and is back near a five-month high. While the labor market remains historically strong, the jobless claims data is beginning to soften. A moderate cooling of the red-hot job market would aid the Fed’s quest to dampen inflation.
Chart of Interest
Claims rising: The recent climb in jobless claims coincides with the start of Fed policy tightening in March. It shows labor demand still strong but potentially easing.
Sources: Federal Reserve Bank of St. Louis, Altair Advisers
Key Takeaways
- The Federal Reserve is front-loading its interest-rate hikes – raising the federal funds rate aggressively this spring and summer – in hopes of weakening inflation and ceasing its tightening early next year. The Fed projects a target rate of 3.25% by year-end, up from 0% at the beginning of the year and the current 1.5%.
- Foreign central banks are following the Fed’s lead in boosting interest rates to tame inflation. Government banks in England, Hungary and Switzerland hiked rates on the heels of the Fed’s 0.75% increase on June 15th, and the European Central Bank and Bank of Australia previewed tightening moves to come. Supply-chain problems stemming from Covid-related shutdowns in China and Russia’s war in Ukraine have exacerbated inflation globally.
- The housing market, while remaining strong in most parts of the country, is slowing as mortgage rates hit almost 15-year highs. Home sales, housing construction, permits and mortgage applications were reported down this week and several companies announced layoffs of real estate sales or home lending staff. Further moderation will help reduce inflation and could allow the Fed to ease its tightening pace more quickly.
- The dollar has risen 9% against a basket of other leading currencies this year, including 6% in the second quarter alone. Despite the dollar surge which is a headwind for international assets, non-U.S. stocks have outperformed U.S. stocks so far this year.
- The coronavirus appears to be receding in the United States again after its latest upsurge in the spring, further stoking travel and leisure spending. U.S. COVID-19 case numbers have leveled off and are beginning to fall, deaths have declined and hospitalizations are showing signs of having peaked. Trends differ internationally, with case numbers on the rise again in Europe and a new wave sending hospital admissions sharply higher in Britain.
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