Stock indices ended the week lower with emerging markets and the Dow 30 Industrials posting substantial losses but the Nasdaq posting slight losses.
The Federal Reserve met and updated its interest rate guidance. Previously, the FED indicated it would keep rates near zero through 2023. Now 11 out of 18 members on the FOMC committee are expecting there will be two interest rate increases before the end of 2023. The FED also expressed concern over the magnitude of the inflation spike but believes inflation will run lower in 2021. Chairman Powel recommended taking talk of rate increases “with a big grain of salt” and that it these conversations are “highly premature”.
The selloff was exacerbated by the expiration of stock options, stock index futures, and stock index options on Friday. This so called “triple witching” event occurs four times a year.
It was a busy week for economic data with mixed results.
The Senate Bill approved last week to support technology research and development included $52BN to support semiconductor (chip) manufacturing to compete globally and secure the U.S. supply chain. The shortage has been hurting many other industries, especially auto manufacturing. $52BN sounds like a big figure but putting it in perspective:
- China is planning to spend $1.4TN over six years to take the lead in chips, artificial intelligence and autonomous driving.
- South Korean based companies (Including Samsung and SK Hynix Inc.) are planning to invest $450BN over the next 10 years.
- Taiwan Semiconductor is planning to spend $100BN over the next three years. (Although that includes several manufacturing facilities in Arizona).
Treasury yields fell with the 30-year bond yield closing at 2.018% and the 10-Year note closing at 1.437%. Crude oil rose to $71.60 a barrel and natural gas fell to $3.219 per MMBTUs. The U.S. dollar index rose to 90.51 and gold fell to $1763.40 an ounce.
In the economic numbers this week:
- China reported:
- Industrial production has risen 8.8% in May from a year earlier.
- Factory activity has risen 13.6% from a year earlier.
- Retail sales have risen 12.4% from a year earlier in May, down from 17.7% year over year in April.
- Japan’s central bank met and kept its easy monetary policy unchanged and extended its pandemic emergency lending program until March 2022. Also, the bank introduced a new lending facility for climate change.
- The Federal Reserve reported that industrial production rose 0.8% in May from April:
- Manufacturing rose 0.9% due to a 6.7% rebound in automobile production after more chips became available. Excluding autos, manufacturing rose 0.5%. In the prior month automobile production fell 5.7%.
- Utility output rose 0.2% as temperatures rose to typical levels, requiring air conditioning.
- The oil and gas drilling sector of mining rose 4.3% in May after increasing 2.8% in April.
- The Commerce Department reported:
- Retail spending fell 1.3% in May from the peak in April. Brick and mortar stores saw increases while auto sales fell due to computer chip availability.
- Housing starts increased 3.6% in May, as higher lumber and other materials have restrained growth. Single family home construction rose 4.2% while multifamily homes rose 2.4%.
- Lumber prices were 154.3% higher in May than a year earlier. However, wholesale lumber prices have fallen 47% from the peak on May 7th.
- The Labor Department reported:
- Producer prices rose 0.8% in the month of May up from a 0.6% increase in April. Core prices, excluding volatile food and energy, rose 0.7%. Supply chain issues, extended delivery times, increased transportation costs and shortages of materials and labor all contributed to the increase.
- A seasonally adjusted 412,000 workers filed initial claims for unemployment in the week ending June 5th up from a revised 375,000 the week before. This was the first weekly increase since April.
- The 4-week moving average of claims, designed to smooth out volatility, fell to 395,000.
- Continuing claims were nearly unchanged at 3.5MM in the week ending June 5th.
- A broader measure of claims including extended benefits, pandemic assistance and other programs fell from 15.3MM to 14.8MM in the week ending May 29th.
- For the full unemployment report go here: https://www.dol.gov/ui/data.pdf .
- The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf . Also, the EIA reported in the prior week:
- Field production of crude rose from 11.0MM BPD to 11.2MM BPD.
- Natural gas storage rose 16BN cubic feet and is below the average level at this time of year during the past five years.
- Baker Hughes reported the number of active oil rigs rose 8 to 373. The number of active natural gas rigs increased 1 to 97.
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Loren C. Rex, CFP®, MA Erik A Smith AIF®
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
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Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.