Dow plunged 745 (but slightly above early lows), decliners over advancers by a massive 8-1 & NAZ tumbled 395. The MLP index fell 5+ to the 221 & the REIT index retreated 7+ to 414. Junk bond funds declined & Treasuries were heavily sold, raising yields (more below). Oil dropped 2 to the 119s following its recent rally & gold went up 5 to 1859.
AMJ (Alerian MLP index tracking fund)
Inflation remained painfully high in May, with consumer prices
hitting a new 4-decade high that exacerbated a financial strain for Ms of Americans & worsened a political crisis for Pres
Biden. The Labor Dept said that the consumer price
index, a broad measure of the price for everyday goods including
gasoline, groceries & rents, rose 8.6% in May from a year ago. Prices
jumped 1% in the one-month period from Apr. Those figures were both
higher than the 8.3% headline figure & 0.7% monthly gain forecast. It marks the fastest pace of Inflation since 1981. Core prices, which exclude more volatile measurements of food &
energy, climbed 6% from the previous year, also more
expected. Core prices also rose 0.6% on a monthly basis, suggesting that
underlying inflationary pressures remain strong. Scorching hot inflation has created severe financial pressures for
most US households, which are forced to pay more everyday necessities
like food, gasoline & rent. The burden is disproportionately borne by
low-income Americans, whose already-stretched paychecks are heavily
impacted by price fluctuations. Rising prices are eating away the
strong wage gains that American workers have seen in recent months.
Real average hourly earnings decreased 0.6% in May from the previous
month, as the inflation increase eroded the 0.3% total wage gain. On an annual basis, real earnings
actually dropped 3% in May. Price increases were widespread. Energy prices rose 3.9% in May from the
previous month & are up 34.6% from last year. Gasoline
costs were up 48.7% more than it did one year ago & 7.8% more than it did in
Apr. In all, fuel prices jumped 17% in May on a monthly basis,
pushing the one-year increase to a stunning 107%.
Inflation surges to new highs, squeezing Americans under Biden
Short-term Treasury yields popped,
after the release of hotter-than-expected inflation data raised concern
over a possible recession. The 2-year rate jumped more than 8
basis points to trade above 2.9%. The benchmark 10-year Treasury yield
briefly rose before giving up those gains, last trading at about 3.04%. Short-term rates moved more due to their higher sensitivity to Federal
Reserve rate hikes. The consumer price index, a closely watched inflation gauge, rose by 8.6% in May on a year-over-year basis,
its fastest increase since 1981. The forecast expected a gain of 8.3%. Core CPI, which strips out volatile food & energy prices, rose 6%. That's also above an estimate of 5.9%. Inflation has been surging all year, leading the Fed to raise rates in order to mitigate those pricing pressures. The
Fed started raising rates in Mar & implemented a 50-basis-point
hike in May, its largest in 22 years, with the Federal Open Market
Committee meeting minutes pointing to further aggressive increases ahead.
2-year Treasury yield surges above 2.9% on hotter-than-expected inflation report
Average long-term US mortgage rates made a swift jump this week, further squeezing cash-strapped American homeowners. A 30-year fixed-rate mortgage averaged 5.23%, according to Freddie Mac. That's up from last week's average of 5.09%. It'' also a significant uptick since a year ago when 30-year fixed-rate mortgage rates averaged 2.96%. Until Apr, average rates hadn't exceeded 5% in more than 10 years. The recent rise in mortgage rates comes "on the back of increased economic activity & incoming inflation data," Freddie Mac's Chief Economist Sam Khater said. It also comes just ahead of a Federal Reserve meeting where the Fed is expected to raise its main borrowing rate by another ½ point. Buyers are increasingly being priced out of the market due the surge in mortgage rates coupled with rising home prices. "The housing market is incredibly rate sensitive, so as mortgage rates increase suddenly, demand again is pulling back," Khater added. On Wed, the Mortgage Bankers Association reported that mortgage applications decreased 6.5% from one week ago. The group's composite index, a measurement of mortgage loan application volume, is at its lowest level in 22 years. Its refinance index is 75% lower than a year ago. However, that drop in demand could benefit determined homebuyers. Meanwhile, the average rate on 15-year, fixed-rate mortgages, popular among those refinancing their homes, rose to 4.38% from 4.32% last week.
Mortgage rates jump, reaching above 5% for the first time in over a decade
As expected, the inflation news was dreary. On Tues, the news on producer price will signal price increases in the coming months. It's not expected to bring cheer to investors. The Dow chart below suggests Dow could be testing its 16 month lows when stocks were rising.
Dow Jones Industrials
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