Dow plunge 852, decliners over advancers a massive 7-1 & NAZ dropped 550. The MLP index was off 3+ to the 216s & the REIT index sank 8+ to the 452s. Junk bond funds retreated along with selling in stocks & Treasuries were heavily sold, taking the yield on the 10 year Treasury up a huge 12 basis points to 3.04%. Oil gained 1+ to the 109s & gold jumped 20 to 1852.
AMJ (Alerian MLP index tracking fund)
Federal Reserve Chair Jerome Powell alleviated some concerns of a looming economic recession after he rejected the possibility of an even larger interest rate hike than the one the central bank announced yesterday. Bond yields fell & stocks recorded their best day since 2020 after Powell helped to calm investors, who worried that the Fed's aggressive tightening of monetary policy in order to tame the hottest inflation in 40 years could tip the economy into a recession. In remarks after the FOMC voted to raise its key interest rate by 50-basis points for the first time since 2000, Powell rebuffed any suggestion that a mega-sized, 75-basis point increase is on the table at future meetings. The S&P 500 rose 3% following his comments, the biggest jump since May 2020. "A 75-basis point increase is not something that the committee is actively considering," Powell told reporters. His comments came after policymakers voted unanimously to raise the key benchmark rate by a ½ point to 0.75%-1.0%, the highest since the pandemic began 2 years ago, as they look to curb consumer demand in order to reduce soaring prices. The Fed also announced it will start reducing its massive $9T balance sheet, which nearly doubled in size during the pandemic as the central bank bought mortgage-backed securities & other treasuries to keep borrowing cheap. In a plan outlined yesterday, the Fed indicated that it will begin winding down the balance sheet Jun 1 at an initial combined monthly pace of $47.5B, a move that will further tighten credit for US households. It will increase the run-off rate to $95B over 3 months. Collectively, the steps mark the most aggressive tightening of monetary policy in decades as the Fed races to catch up with inflation, which hit a fresh 40-year high in Mar. "Inflation is much too high," Powell told reporters. "We understand the hardship it is causing, and we’re moving expeditiously to bring it back down. We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses."
Fed's Powell addresses fears that an even larger rate hike is coming
The number of Americans filing for unemployment benefits unexpectedly climbed higher last week, hitting the highest level since Feb as soaring inflation & a persistent labor shortage weighed on businesses. Figures from the Labor Dept show that applications last week rose to 200K from an upwardly revised 181K a week earlier, missing the 182K forecast. Continuing claims, or the number of Americans who are consecutively receiving unemployment aid, fell to 1.38M, a decrease of 19K from the previous week. The report shows that roughly 1.5M Americans were collecting jobless benefits, a modest decrease from the previous week; by comparison, just a little over one year ago, more than 16.1M Americans were receiving benefits. Claims have largely moderated as the economy recovers from the pandemic & Americans venture out to travel, shop & eat. Businesses have struggled to keep up with the demand, however & have reported difficulties in onboarding new employees. Despite the slight uptick in claims, this report suggests that companies are making an effort to retain the workers they already have.
Jobless claims rose to highest level since February
Treasury yields rose, erasing their losses from the previous session that were sparked by Fed Chair Jerome Powell signaling that the central bank would not take more aggressive hikes at upcoming meetings. The yield on the benchmark 10-year Treasury note rose nearly 13 basis points to 3.042%, hitting its highest level since 2018. The yield on the 30-year Treasury bond rose 13 basis point to 3.134%. Yields move inversely to prices & 1 basis point is equal to 0.01%. The Fed announced it was raising its benchmark interest rate by ½ a percentage point yesterday, which marked its largest single hike since 2000, but was in line with market expectations. The central bank also outlined its plans to start reducing its balance sheet in Jun. However, Fed Chairman Jerome Powell said a 75-basis-point hike was not something the Federal Open Market Committee was “actively considering.” That saw the 10-year yield fall after the meeting yesterday. The 10-year Treasury yield hit 3% on Mon & again today in the lead-up to the meeting, amid concerns that rising inflation & the Fed’s more aggressive hiking of interest rates could slow economic growth. The benchmark 10-year rate has since softened but remains high, with investors monitoring key pieces of economic data.
10-year Treasury yield snaps back above 3%
Dow Jones Industrials
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