Stocks Dip on Fed Meeting Minutes; Bonds Flat to Lower

Good morning, and welcome to June already!

The Dow (-1.0%), NASDAQ (-1.1%), and S&P 500 (-0.5%) each fell modestly last week.  Meanwhile taxable bonds were roughly unchanged, but tax-free municipal bonds lost about 0.4%.  The 10-year Treasury yield rose 0.02% to finish the week at 4.49%.

In a holiday-shortened trading week, stocks indices were mostly lower, led by a dip in technology stocks.  However, value-oriented stocks held up well, as they gained fractionally.  Given that earnings season is mostly over and very little economic data was reported, investors’ attention was focused on the Fed meeting minutes from their May meeting.  Specifically, the Fed Chairman Powell stated, “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such action became appropriate”.  In short, the Fed is saying behind closed doors that they are still willing to raise interest rates if inflation rears its head again.  Conversely, the meeting minutes also pointed to areas where the economy is slowing, such as an increased usage of credit cards and increased delinquency rates for some types of consumer loans.

On Friday, the Fed-favored inflation report, Personal Consumption Expenditures (PCE), came in a smidge lower than expected, which was greeted with investor enthusiasm.  Thanks to a sharp rally on Friday, stocks recovered most of their weekly losses, but still ended down about 1%.  Post- Memorial Day marks the unofficial start to the summer when trading on Wall Street is lower, lending itself to more volatility.  Volatility isn’t necessarily a bad thing, but it can test your nerves a little when the movement is in the downward direction.  Given no major economic news, increased volatility shouldn’t be something to be concerned about at this time.

Have a great day and terrific week!

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