Friday, May 27, 2022

Markets rise after inflation

Dow went up 230, advancers over decliner 5-1 & NAZ gained 265.  The MLP index added 1+ to 219 & the REIT index advanced 8+ to the 442s.  Junk bond funds were being purchased & Treasuries traded higher.  Oil was a tad lower into the 113s & gold rose 6 to 1854.

AMJ (Alerian MLP index tracking fund)


 

 




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A key measure of annual inflation that is closely watched by the Federal Reserve continued to run hot in Apr as widespread supply disruptions, extraordinarily high consumer demand & worker shortages fuel rapidly rising prices.  The personal consumption expenditures price index, which measures costs that consumers pay for a variety of different items, showed that core prices – which exclude the more volatile measurements of food & energy – soared 4.9% in the year thru Apr, according to the Bureau of Economic Analysis.  That measurement is the Fed's preferred gauge to track inflation; it marks the 13th consecutive month the gauge has been above the central bank's target range of 2%.  Still, it was slightly below Mar's measurement of 5.2% & is down from the 39-year high of 5.3% that was recorded in Feb.  In the one-month period between Mar & Apr, core prices soared 0.3%, suggesting that prices are leveling off, but are not yet falling.  The slowdown in inflation in Apr largely stemmed from a drop in the price of gasoline & other energy sources.  Gas prices soared in Mar as a result of the Russian invasion of Ukraine, then cooled off slightly in Apr.  Prices have since returned to the highest level on record.  Including food & energy, the inflation gauge jumped 6.3% in Apr from the previous year, holding steady near last month's measurement of 6.6%, which was the fastest pace since 1981.  On a monthly basis, the headline gain climbed by just 0.2%.  The PCE report was accompanied by data on household spending, which showed that consumers shopped at a rapid pace in Apr, with personal spending climbing by 0.9% before accounting for inflation & 0.7% after adjusting for price increases.

Key inflation measure rose in April to a near 40-year high

The latest inflation read from the gov, the core personal consumption expenditures price index, showed that prices may be starting to ease from record levels, but financial stress among workers amid the steepest inflation in 4 decades remains as high as ever.  2/3 of American workers say their salaries are not keeping pace with inflation & the percentage of employees considering quitting a job is at a 4-year high, according to a new CNBC|Momentive Workforce Survey.  66% of workers say inflation has outpaced any salary gains they've made in the past 12 months, while 19% say increases in their salary have about matched inflation & 13% say their salary has increased more than inflation.  As more American workers at multiple income levels give voice to a frustration that the economic data has been signaling throughout this year — that price gains continue to outpace wage gains — the squeeze is particularly high among middle-income workers.  Those with incomes of $50-150K are more likely than high-income & low-income groups to say their salary has not kept up with inflation.  The online poll was conducted May 10-16 among a national sample of 9254 workers in the US.  While 72% of workers in the poll say they are “well paid” or “very well paid,” that is tied for the lowest level in the survey's history, while the 28% who say they are not well paid is at an all-time high.  39% of workers say they have seriously considered quitting their jobs in the past 3 months, the highest level since the survey began in 2019, and up 6% from last Nov.  The latest inflation reading spurred hopes peak inflation may have been passed, but an easing in prices doesn't mean high inflation is going away.

Two-thirds of American workers say their pay is not keeping up with inflation

Treasury yields slipped as fears over the Federal Reserve's plans to aggressively hike interest rates appeared to ease & a key inflation reading showed a slowing rise in prices.  The yield on the benchmark 10-year Treasury note moved lower by 1 basis point to 2.745% & the yield on the 30-year Treasury bond fell about 3 basis points to 2.966%.  Yields move inversely to prices & 1 basis point is equal to 0.01%.  The Fed’s preferred inflation metric showed a 4.9% year-over-year rise in Apr.(see above).  This result matched expectations & could be a sign that inflation is starting to decline.  Treasury yields have mostly moved lower this week, as investors sought shelter from heavy selling in stock markets.  Disappointing earnings from a number of technology stocks have fueled fears that a slowdown in economic growth could be starting to show thru in company data.  The Fed's plans to aggressively raise interest rates to combat inflation had caused concern among investors that this would contribute to an economic downturn.  Minutes from the central bank’s May meeting showed that the Fed saw a need to raise rates quickly & potentially go further than the market had expected.  However, stocks rose after minutes of the meeting, indicating that investors were largely unsurprised by the minutes.  In other economic news, personal income rose 0.4% in Apr which compares with hte forecast of a 0.5% gain.

Treasury yields dip as key inflation metric shows possible slowdown in rising prices

Even though inflation is a nagging problem, traders took today's inflation news with a sense of calm.  It looks like the data is leveling off & these rates have been expected.  But high inflation is not going away & the Fed will be raising interest rates.  As shown below, the Dow has recouped much of the decline in May.

Dow Jones Industrials

 






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