THE WEEK ON WALL STREET
With growing confidence in the economy’s resilience, stocks posted another week of
solid gains. The Dow Jones Industrial Average rose 0.31%, while the Standard &
Poor’s 500 advanced 1.79%. The Nasdaq Composite index picked up 1.98% for the
week. The MSCI EAFE index, which tracks developed overseas stock markets, added
0.27%.
STOCKS EXTEND GAINS
Markets bounced around all week as investors grappled with the crosswinds of
rising yields, continued hostilities in Ukraine, and hawkish comments from Fed
Chair Jerome Powell. After suffering declines in two of the first three trading
sessions of the week, stocks turned higher on a good jobless claims number that
investors interpreted as continuing economic strength. Stocks drifted higher as the
week came to a close amid rising bond yields, which on Friday saw the 10-year
Treasury yield rise for the 13th time in 16 trading sessions.
LABOR MARKET
Many economists speculated that the invasion of Ukraine would likely shave
economic growth in the short term as hostilities worsened supply chains and
increased inflationary pressures. The impact, so far, has not been seen in the labor
market. Last week’s initial jobless claims fell by 28,000 to 187,000, the lowest level
since December 1969. The number of people on state unemployment rolls fell to
1.35 million, from 1.42 million the previous week, while open jobs are at a near-
record high of 11.3 million. Employers’ need for workers suggests that the demand
for products and services has remained resilient despite the events in Eastern
Europe.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Consumer Confidence. JOLTS (Job Openings and Turnover Survey).
Wednesday: Gross Domestic Product (GDP). Automated Data Processing (ADP)
Employment Report.
Thursday: Jobless Claims.
Friday: Employment Situation. Institute for Supply Management (ISM)
Manufacturing Index.
THE WEEK AHEAD: COMPANIES REPORTING EARNINGS
Tuesday: Micron Technology, Inc. (MU), lululemon athletica, inc. (LULU), Chewy
(CHWY).
Wednesday: Paychex, Inc. (PAYX).
Thursday: Walgreens Boots Alliance, Inc. (WBA).
FINAL THOUGHTS
The market has travelled a long way from the recent lows in a relatively short period
of time. It wouldn’t surprise me to see it take a breath or two here. There is still a
lot of negativity priced in this market without much good news in the forecast. So,
any good news could push things a bit higher in the near term. Of course, more
negative news can do the opposite. Interest rates continue their march higher and
you’re starting to hear how the yield curve is beginning to flatten out. When the yield
curve is steep, banks can borrow money at lower interest rates and lend at higher
interest rates. Conversely, when the curve is flat they find their margins squeezed,
which can deter lending. A flat yield curve doesn’t mean inverted yield curve. An
inverted curve is when short-term rates are higher than long term rates. Inverted
yield curves can lead to recession, but not always. Nonetheless, you’ll hear every
doomsdayer out there singing this song. The Fed has some work to do to curb
inflation, but Armageddon is not at hand.
I was travelling last week and I will tell you, people are out spending money. They’re
finally starting to get beyond the fears of Covid and sans another round of some
other variant I suspect you’ll see record numbers of travelers this summer despite
high gas prices. I won’t get into it here today, but unless you’re on the fringe $1
higher gas prices isn’t changing your life. Yes, higher gas prices are annoying and
you’d rather spend the money on other things, but you’re not changing your lifestyle
at these prices. Sure, there is a line in the sand where you will begin to change your
habits, but I don’t know many who have done this just yet. If they’re smart, big
businesses hedge some of their fuel prices, so they are equipped to deal with this in
the near term. Finally, it has been said and proven many times over that the best
cure for high oil prices is high oil prices. Oil companies drill more when prices are
high. Higher oil reserves typically start to push prices back down. Rig counts have
been going up. Stay tuned…
Have a good week!
