June Economic Update
Market Summary
Stocks were mixed in May as a powerful rally in the final week of trading helped recoup losses from earlier in the month. The Dow Jones and the S&P 500 finished relatively flat, gaining 0.04% and 0.01% respectively, while the Nasdaq Composite slipped 2.05%. (1)
Economic Data
The markets experienced wild swings last month due to ongoing uncertainty over economic health and the path of inflation. Investors are conflicted when interpreting data, in some instances viewing economic strength as a negative since it may mean more aggressive interest rate hikes from the Federal Reserve. One such example is the current state of the labor market as the U.S. added 390,000 jobs in May, well above expectations. While this is normally a positive indicator for our economy, it also signals to the Federal Reserve they can continue raising interest rates without being concerned about the impact within the job market. (2)
Much attention is also being placed onto the state of the consumer after disappointing earnings from major retailers which raised concerns regarding the impact of inflation and the U.S. consumer’s willingness to open their wallets. Prices of consumer goods rose 8.3% from a year ago, a pace which is approaching 40-year highs. (3)
Dollar Strength
The U.S. dollar has been strengthening against other currencies all year. The U.S. Dollar Currency Index, which tracks the dollar’s value against a basket of major international currencies, has risen about 8% since the start of the year. (4)
The value of the dollar is closely watched because roughly 40% of the aggregate earnings of S&P 500 companies come from overseas sales. A strong dollar helps shoppers in the U.S. buy imported products at lower prices, but it also makes U.S. exports more expensive to overseas customers. This could potentially impact demand for goods and services and be reflected in second-half earnings reports from companies with international sales exposure. (5)
Looking Forward…
As we approach the mid-point of the year, there are many crosscurrents at this current juncture. Inflation, interest rates, the labor market, consumer confidence, the ongoing war in Ukraine, currencies, and the upcoming mid-term elections, just to name a few.
All eyes will once again be on the Federal Reserve when they make their next announcement on June 15th regarding interest rate increases, the state of the U.S. economy, and their policy expectations over the coming months. Investors will also be looking for any signs of inflation beginning to wane when the latest CPI data is released.
Market gyrations, similar to what we experienced last month, will likely continue - both up and down - as investors digest each and every new economic data point that will be released. It is during these economic periods and market cycles where maintaining a long-term perspective is crucial while portfolio diversification helps to smooth out the short-term fluctuations. As always, we will maintain our focus on the markets and manage risk accordingly.
Monthly Financial Tip:
If you want to improve your credit score, an inactive credit card will not help (and it may even hurt). The key factors in credit score determination are recent activity and recent payment history.
Citations:
1 WSJ.com, May 31, 2022
2. CNBC, June 3, 2022
3. CNBC, May 11, 2022
4. CNBC.com, May 31, 2022
5. FactSet.com, May 6, 2022
Disclaimers:
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
