Thursday, June 16, 2022
It’s a familiar sight, as we’ve seen it now in consecutive months: a Fed decision on monetary policy comes out, the market responds favorably — thankful it can finally erase a few question marks in their outlook. Then, the following day, a bit of buyer’s remorse sets in as they realize their anxieties about the road ahead have not yet been cooled.
The Dow grew 303 points yesterday, +1.00% exactly, but is now down -500 points ahead of the opening bell. The Nasdaq, which gained 270 points yesterday, has so far given back 275. The S&P 500 is also at a deficit from yesterday’s close: +54 points yesterday, -75 at this hour.
In a tougher economy, there really aren’t any easy answers. This may be tough to swallow after an era of low interest rates and high liquidity. But nobody has been able to ignore inflation metrics — not when they’re this high — not even the Fed. And the tools the Fed has to fight inflation relate to diminishing demand — and these are counter to fostering a strengthening economy the way we’ve become accustomed.
Initial Jobless Claims are still low, but are off the lowest cyclical rungs of the ladder: 229K came in on new claims last week, down a smidge from the slightly upwardly revised 232K the previous week. For 6 of 7 weeks since the start of May, we’ve been above 200K, with a 4-week moving average rising to 218,500. These are still historically very good numbers, but they appear headed in the wrong direction.
Continuing Claims, reported for a week previous to new claims, are still essentially at 50+-year lows: 1.312 million is up microscopically from the 1.309 million the prior week, and still in the range harking back to the Jimi Hendrix era. However, as more new claims begin tallying up week over week, we expect at least some of this unemployment to creep into longer-term jobless claims over time.
Housing Starts for May reported 1.549 million seasonally adjusted, annualized units, -14.4% from the previous month’s upwardly revised 1.81 million. That’s a big drop, and the lightest single-month total since April 2021. It’s also consistent with what we’ve seen in home-buying data overall, where rising mortgage rates appear to be helping price customers out of the market, near term.
Building Permits for May, seen as a proxy for future starts, reached 1.695 million seasonally adjusted, annualized units — way down from 1.78 million estimated, and far lower than the slight downward revision to the previous month’s 1.81 million. These numbers are going in a similar direction as starts, and the rare case where permits come in higher than starts speaks volumes about current weakness in new home construction.
Finally, the Philly Fed survey for June is out this morning, and it also disappoints expectations with its first negative headline in the past year at least: -3.3, down from the +4.8 expected and the +2.6 reported for May. In fact, it’s the lowest read on Philadelphia productivity since May 2020. It also follows another negative print from the Empire State survey released earlier this week.
OK, so the “soft landing” scenario — which never had much of an open window to fly through, let's be honest — is even less likely after all these fresh data points. If there is some good news to these diminished monthly and weekly figures, it’s that perhaps Fed policy is working to cool the burn of inflation in the ways the Fed is able (meaning: not oil prices). So the market turnaround this morning seems reasonable, if not exactly happy news.
Questions or comments about this article and/or its author? Click here>>
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Pre-Markets Re-Think Fed Decision, Fall Again
Thursday, June 16, 2022
It’s a familiar sight, as we’ve seen it now in consecutive months: a Fed decision on monetary policy comes out, the market responds favorably — thankful it can finally erase a few question marks in their outlook. Then, the following day, a bit of buyer’s remorse sets in as they realize their anxieties about the road ahead have not yet been cooled.
The Dow grew 303 points yesterday, +1.00% exactly, but is now down -500 points ahead of the opening bell. The Nasdaq, which gained 270 points yesterday, has so far given back 275. The S&P 500 is also at a deficit from yesterday’s close: +54 points yesterday, -75 at this hour.
In a tougher economy, there really aren’t any easy answers. This may be tough to swallow after an era of low interest rates and high liquidity. But nobody has been able to ignore inflation metrics — not when they’re this high — not even the Fed. And the tools the Fed has to fight inflation relate to diminishing demand — and these are counter to fostering a strengthening economy the way we’ve become accustomed.
Initial Jobless Claims are still low, but are off the lowest cyclical rungs of the ladder: 229K came in on new claims last week, down a smidge from the slightly upwardly revised 232K the previous week. For 6 of 7 weeks since the start of May, we’ve been above 200K, with a 4-week moving average rising to 218,500. These are still historically very good numbers, but they appear headed in the wrong direction.
Continuing Claims, reported for a week previous to new claims, are still essentially at 50+-year lows: 1.312 million is up microscopically from the 1.309 million the prior week, and still in the range harking back to the Jimi Hendrix era. However, as more new claims begin tallying up week over week, we expect at least some of this unemployment to creep into longer-term jobless claims over time.
Housing Starts for May reported 1.549 million seasonally adjusted, annualized units, -14.4% from the previous month’s upwardly revised 1.81 million. That’s a big drop, and the lightest single-month total since April 2021. It’s also consistent with what we’ve seen in home-buying data overall, where rising mortgage rates appear to be helping price customers out of the market, near term.
Building Permits for May, seen as a proxy for future starts, reached 1.695 million seasonally adjusted, annualized units — way down from 1.78 million estimated, and far lower than the slight downward revision to the previous month’s 1.81 million. These numbers are going in a similar direction as starts, and the rare case where permits come in higher than starts speaks volumes about current weakness in new home construction.
Finally, the Philly Fed survey for June is out this morning, and it also disappoints expectations with its first negative headline in the past year at least: -3.3, down from the +4.8 expected and the +2.6 reported for May. In fact, it’s the lowest read on Philadelphia productivity since May 2020. It also follows another negative print from the Empire State survey released earlier this week.
OK, so the “soft landing” scenario — which never had much of an open window to fly through, let's be honest — is even less likely after all these fresh data points. If there is some good news to these diminished monthly and weekly figures, it’s that perhaps Fed policy is working to cool the burn of inflation in the ways the Fed is able (meaning: not oil prices). So the market turnaround this morning seems reasonable, if not exactly happy news.
Questions or comments about this article and/or its author? Click here>>