The big news is the FOMC rate announcement on June 15 and subsequent press conference with Fed Chairman Jerome Powell. Following a red hot CPI report, the odds for a 75-point rate hike jumped to 20% from 5% to add some intrigue to the meeting.
The past two years have shown the downsides of globalization as the COVID pandemic and geopolitical threats upended the supply chain. On the other hand, there are also risks associated with protectionism, like in the case of U.S. baby formula, of which 98% is produced domestically by a trio of companies: Abbott, Gerber (OTCPK:NSRGY) and Mead Johnson (OTCPK:RBGLY). Import duties and restrictions have eliminated competition from Canada and Europe, while nearly two-thirds of all formula is purchased through federally-funded WIC, which only does business with these three domestic manufacturers.
Investors are nervous going into next week with more retailers due to report. Target and Walmart announced lackluster results, in the face of inflationary pressures and supply chain woes, which precipitated broad selling across sectors. Costco, Best Buy, Advance Auto Parts, Nordstrom, Dick’s Sporting Goods and Macy’s are a few reports to watch from consumer-facing companies this week.
The DJIA had a bullish reversal in the final hour of trading Friday to end the week slightly in the black. The Nasdaq almost did the same but closed with a 0.3% loss.
The S&P 500 teased investors with late day gains, but took a slide at close. Right now it appears that investors can expect any big rally to fizzle pretty fast. The S&P 500 came within a fraction of falling 20% from its November peak. The Nasdaq is still about 28% below its peak, which is well into bear market territory.
The Fed is expected to pull the trigger on its first half-percentage point rate hike since 2000. There’s also the chance that the Fed begins to reverse its large-scale asset purchases used to help stabilize markets during the COVID crisis.
The Dow suffered its worst beating since October 2020 last week, capping a fourth straight weekly decline. Investors looked past mostly positive earnings reports on the near certainty that the Fed will raise interest rates by at least a half point at its meeting next month. Friday’s ~1,000 point drop in the Dow followed a speech by Jerome Powell that signaled support for a 50-basis point rate. Rates jumped on Powell’s remarks before the benchmark 10-year yield eased slightly to about 2.9%.
The Dow Jones Industrial Average was forced lower after briefly moving into positive territory as stocks battled back. Twitter (TSLA) jumped after Tesla (TSLA) CEO Elon Musk and Twitter founder Jack Dorsey attacked the Twitter board amid an ownership battle.
What is an inverted yield curve? An inverted yield curve describes the drop of longer-term debt below the yields of short-term debt of the same credit quality. Remember that longer dated maturities tend to have higher yields to accommodate for “additional risk”. This risk comes from the fact that rates may move dramatically during this time.
The energy sector helped the S&P 500 gain 0.5% on Friday and 1.8% for the week. The Nasdaq fell slightly on Friday but led the major indexes for the week with a 2% rally.