Stocks Fall on European Interest Rate Hikes
The Dow (-1.7%), NASDAQ (-1.4%), and S&P 500 (-1.4%) each fell for the week. Meanwhile, taxable and tax-free municipal bonds gained about 0.1% and 0.3%, respectively. The 10-year Treasury yield fell 0.04% to end the week at 3.74%. The inverted yield curve (the difference between the yields of the 2-year and 10-year Treasuries) has now reached a whopping 1.00%.
The main driver for market losses last week was investors’ reactions to European countries raising interest rates and the Fed Chairman’s comments that interest rate hikes were likely to continue in the US, as core inflation persists. In other news - my favorite gauge – Leading Economic Indicators (LEIs) remained negative, just slightly less negative than April. As per the Conference Board, “The US LEI has declined in each of the last 14 months and continues to point to weaker economic activity ahead. Rising interest rates paired with persistent inflation will continue to further dampen economic activity”.
Conversely, there was positive news coming from the housing market. Housing starts surged 21.7% over the prior month to the highest level since April 2022. Additionally, building permits (a leading indicator) also beat expectations, rising 5.2% over the prior month. While builders still remain cautious after getting burned by the recession in 2008, there seems to be some renewed optimism driven by the extreme shortage in the housing inventory right now. Hopefully, an increased supply will help lower housing prices and relieve some of the inflationary pressure it has been causing.
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The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
