Mid-Week Market Minute 07.06.22

Stocks in the U.S. were mostly flat this week following the long holiday weekend. Energy stocks lagged this week, as oil prices tumbled below $100 per barrel for the first time since early May. In central bank news, minutes for the Federal Reserve’s June meeting are due out Wednesday afternoon, where investors will look for more details around the Fed’s recent decision to hike rates by 0.75%. The Federal Open Market Committee (FOMC) has changed dramatically regarding transparency over the years, now disclosing policy changes at the end of each meeting. Historically, the Fed used to keep investors guessing about policy changes. The minutes now include the complete economic analysis compiled by Fed officials and whether any FOMC members have voiced opinions at odds with the rest of the group.

On the data front, job openings totaled 11.25 million for May, a notable drop from the upwardly revised 11.68 million in April. In total, there were 5.95 million people counted as unemployed, meaning job openings still outnumber available workers nearly 2 to 1. Key data on employment will be released on Friday as well, with a consensus of 270,000 new jobs expected for June (vs. 390,000 in May) and with the unemployment rate expected to remain at 3.6%. Federal Reserve officials watch these jobs reports closely for signs of slack in the labor market.

In bonds, the yield on the 2-year Treasury note was trading around 2.92% this week, modestly higher than the 10-year note which traded around 2.88%. This curve inversion, where short-term rates are higher than long-term rates, will garner plenty of attention on Wall Street as this scenario has historically preceded recessions. According to Bloomberg data, the odds of a U.S. recession in the next year are now 38%. As we enter the second half of 2022, the economy is facing significant fiscal drag, as fiscal stimulus (direct checks, expended unemployment, child tax credits, etc.) winds down. In addition, the dollar is now trading at its highest level since March 2020, which hurts exports and profits for U.S. companies.

Source: GSAM, CNBC, JPMorgan

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