Markets closed out another negative week with global stocks and U.S. bonds declining. The S&P 500 has been down nine of the last ten weeks and saw its second worst weekly performance year to date. Treasury yields moved higher across the yield curve last week, pushing bond prices lower, with rates surpassing 3% for 2-year yields and beyond, and the yield curve inverting between 3- and 10-year maturities. In this challenging investment environment, here are some topics to consider:
- Last week's Consumer Price Index (CPI) report showed 1.0% month over month growth in May which exceeded estimates and will draw attention at this week's Federal Open Market Committee (FOMC) meeting. While CPI is used as a measure of inflation, Core Personal Consumption Expenditures (PCE) is the Federal Reserve’s (Fed) preferred inflation gauge. The May PCE print of 4.9% is also well above the Fed’s 2% target and will be considered as an important data point.
- The European Central Bank (ECB) signaled that it intends to raise interest rates by 25 basis points (0.25%) in July, the first time since 2011 that the ECB has raised rates. This underscores that tightening monetary policy is a global story, not just a U.S. story.
Fed policy uncertainty often infuses additional stress into markets. This week's FOMC meeting may provide greater clarity on the Fed's economic outlook and set the tone for upcoming meetings. We expect investors will pay very close attention to Fed Chair Powell’s post-meeting press conference.
A look back
- Global equities were down for the week with the MSCI ACWI losing -4.4%. Emerging markets led the group at -0.5%, while U.S. and international developed stocks both finished the week down close to -5%.
- Yields rose across the curve in anticipation of a potentially more hawkish rate policy. The 10-year U.S. Treasury yield finished the week at 3.15%.
- May CPI came in higher than estimates, accelerating to a 1.0% increase month over month. While May PCE showed signs of cooling, the higher-than-expected CPI print runs counter to the peak inflation narrative.
A look ahead
- Consumer resilience has been at the forefront of economic debate; however, after a record low consumer sentiment print last Friday investors will stay alert for signs of deteriorating consumer trends.
- The Federal Open Market Committee (FOMC) will convene this week. Investors will be focused on Wednesday’s post-meeting press conference.
- Economic releases: NFIB Small Business Optimism, Producer Price Index, Retail Sales, Import & Export Prices, Housing Starts, Industrial Production, and the Leading Index.