Dow plunged 1059 finishing near session lows, decliners over advancers 8-1 & NAZ tumbled 647. The MLP index dropped 7+ to the 212s & the REIT index nosedived 11+ to the 449s. Junk bond funds remained weak & Treasuries continued to be sold, taking the yield on the 10 year Treasury over 3.1%. Oil went up to the 108s & gold added 9 to 1844 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
US stocks tanked, giving back all the gains from yesterday's Fed-fueled rally. The S&P 500 fell 3% & the Nasdaq tumbled over 4%, while Dow slid more than 1000 points (3%). The slide came one day after the Federal Reserve raised interest rates by a ½ a point for the first time in 2 decades & Chair Jerome Powell signaled the economy can avoid a recession. The Fed raised its key rate to 0.75%-1%, the highest point since the coronavirus pandemic struck 2 years ago. On today's economic docket the Labor Dept reported claims for unemployment benefits rose by 200K, up from 180K the previous week & holding at pre-pandemic levels. Continuing claims, which track the total number of unemployed workers collecting benefits, dipped to 14M, the lowest in more than 52 years. Oil prices were choppy after a EU proposal for new sanctions against Russia included an embargo on crude in 6 months. US West Texas Intermediate crude futures traded around $107 a barrel & Brent futures traded near $110 a barrel.
Dow drops 1,000+ points, Nasdaq down 4.6%
The Senate took action on yesterday to begin formal talks on a bill that will allot $52B for semiconductor chip production & supply chain issues & to help boost competition with China. Although the chamber's votes on the motion – as well as multiple others – are nonbinding, they are indicative of what the lawmakers would like to see in the final legislation. The House of Representatives passed the 2900-page America COMPETES Act of 2022 in Feb, though largely without bipartisan support. While House Speaker Nancy Pelosi said the bill ensures the US is not depending on "countries of concern" for critical goods. House Reps balked at being left out of the drafting of the bill, claiming that it has too many provisions that leave the US vulnerable to China's malign activity. Formal negotiations in the House & Senate will start thru a conference committee, & congressional aides said that discussions could span months. A global shortage of semiconductors has threatened multiple industries. The chips are used in computers, cars, smartphones, TVs, refrigerators & more. A Volkswagen exec reportedly said in Apr that the semiconductor chip supply is unlikely to be enough to fully satisfy demand again until 2024. Commerce Secretary Gina Raimondo warned earlier this year that there is no quick fix. "We didn't get in this mess overnight, and we're not going to get out overnight. This has been a problem decades in the making," she explained. "There has been a slow deterioration of our manufacturing base in America over decades, and we need to start now to rebuild." Raimondo urged Congress to negotiate ½ move "as swiftly as possible to get a final version of the bill to President Biden's desk." Legislators have been working on Chinese competition legislation for more than a year.
Senate looks to take one nation out of the supply chain equation
Worker productivity fell to start 2022 at its fastest pace in nearly 75 years while labor costs soared as the US struggled with surging Covid cases, the Bureau of Labor Statistics reported. Nonfarm productivity, a measure of output against hours worked, declined 7.5% from Jan thru Mar, the biggest fall since 1947. At the same time, unit labor costs soared 11.6%, bringing the increase over the past 4 qtrs to 7.2%, the biggest gain since 1982. The metric calculates how much employers pay workers in salary & benefits per unit of output. The forecast called for a 5.2% drop in productivity & an increase of 10.5% in unit labor costs. On a 4-qtr basis, productivity fell 0.6%, the biggest decline since 1993. Taken together, the numbers underline the inflation surge in the US, which has seen prices rise at the fastest level in more than 40 years. Federal Reserve officials yesterday announced they would be raising interest rates ½ a percentage point as part of an ongoing effort to control inflation. The productivity data reflect a qtr in which a variety of factors converged to cause a 1.4% decline in the rate of economic growth as measured by GDP. Rising Covid cases, runaway inflation & the Russian invasion of Ukraine dented activity, though most economists expect growth to resume later in the year. Fed Chair Jerome Powell said that he still sees the US in a strong position though inflation must be tamed if the recovery is to remain strong.
Worker output fell 7.5% in the first quarter, the biggest decline since 1947
Russia’s progress in eastern & southern Ukraine is being closely monitored as its forces appear to have escalated assaults on those regions. Having re-focused its attacks away from northern Ukraine & the capital Kyiv, Russian forces are now looking to take full control of the Donbas region in eastern Ukraine in order to create a land bridge from Russia to Crimea, territory it annexed in 2014. In the latest update from the Ukrainian military, its spokesman said Russian forces “are focusing their efforts on blocking and trying to destroy Ukrainians units in the Azovstal” steelworks where soldiers & civilians have been holed up for up to 2 months. “With the support of aircraft, the enemy resumed the offensive in order to take control of the plant,” Ukraine said in its update. Another 344 civilians were evacuated from the city & suburbs of the southern port city of Mariupol & are on the way to the Ukraine-controlled city of Zaporizhzhia, Pres Volodymyr Zelenskyy said in his nightly address. Pentagon spokesman John Kirby said the Russians have made uneven progress in the Donbas region, following weeks of resupply & repositioning efforts. Nonetheless, the US & its allies are rushing to send additional security assistance amid an intensified Russian assault in eastern & southern Ukraine. German Chancellor Olaf Scholz & Pres Biden spoke about the ongoing Russian war in Ukraine. “They agreed that Ukraine must continue to receive substantial and ongoing support in exercising its legitimate right to self-defense,” according to a German gov spokesman. “They condemned in the strongest possible terms recent statements by the Russian leadership to discredit the democratically legitimized Ukrainian leadership.”
Russian attacks on Mariupol steelworks intensify; U.S. announces more humanitarian aid
Gold futures eked out slight gains, as the $ surged, Treasury yields rose & stocks reversed yesterday's rally. Stocks rallied yesterday after Federal Reserve Chair Jerome Powell said the central bank was not planning to hike its benchmark interest rate by 75 basis points at its next meeting, but safe-haven assets were back in vogue today with equity indices giving back the previous session's gains. Jun gold futures rose $6 to settle at $1875 per ounce. As investors reconsidered the potential effects of tighter monetary policy today, Treasury yields & the $ both rose sharply. The 10-year Treasury rate shot above 3.1%, while the ICE US Dollar Index surged 1.3%, as measured against a basket of 6 major rivals. A stronger $ can be a negative for commodities priced in the unit, making them more expensive to users of other currencies. Attractive Treasury yields also can dull the luster of gold, which doesn't offer a yield.
Gold ekes out gain Thursday as U.S. stocks skid, dollar and bond yields shoot higher
Oil futures ended slightly higher, with the EU seen moving closer to a ban on imports of Russian crude. Natural gas jumped, posting its highest finish in more than 13 years. West Texas Intermediate crude for Jun rose 45¢ to close at $108.26 a barrel. Jul Brent crude, the global benchmark, finished with a gain of 76¢ (0.7%) at $110.90 a barrel. Crude added gains seen after the EU yesterday laid out a plan that would ban imports of Russian crude within 6 months, though a surge by the $ amid a sharp selloff in stocks capped gains. OPEC+ agreed to lift production by 432K barrels a day in Jun. The move was widely expected & in keeping with the group's plan to continue unwinding production cuts that were put in place in 2020 following the onset of the COVID-19 pandemic.
Oil ends slightly higher as EU nears Russia crude ban; natural gas ends at highest since Aug. 2008
This was just another brutal day for socks, taking the Dow to where it was in Mar 2021 (see chart below). Higher interest rates will be felt by just about everybody & every business. The short term outlook remains grim with the interest rate on the 10 year Treasury likely to rise above 4% later in the year. At the same time the unemployment picture continues to be fairly good with the unemployment rate (updated tomorrow ) in what is considered to be fairly full employment. For what it's worth, there was hunting in the last ½ hour of trading which pared losses.
Dow Jones Industrials
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