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Markets Move Lower as Investors Grapple with Higher Inflation and Record Low Sentiment

Market Data as of Week Ending: 06/10/2022 unless noted otherwise

Equities

U.S. stock prices recorded another week of solid losses despite some early-week strength as market volatility continued. The S&P 500 returned -5.04% as markets turned south Thursday afternoon and into Friday as investors grappled with a hotter-than-expected inflation reading and upcoming monetary tightening in Europe. Value stocks were able to hold up better than growth and smaller companies generally outperformed their large company peers. The energy sector led the way again, posting only a minor loss on the week as oil prices climbed most of the week. Traditionally defensive sectors, consumer staples and health care, outperformed while financials, information technology, and consumer discretionary lagged. Developed foreign and emerging market stocks outperformed the U.S.

Bonds

U.S. Treasury yields increased as the price of government bonds decreased after Friday’s inflation reading, sending the 10-year treasury yield 0.22% higher to 3.16%. Higher-quality government bonds outperformed while credit sensitive bonds lagged. Among high quality investment grade bonds, those with shorter durations generally outperformed. Yields on investment grade corporate bonds and high yield corporate bonds jumped higher, and finished the week at 4.6% and 7.8%, respectively.

Macroeconomic Data

Economic data releases were sparse this week and were headlined by a hotter-than-expected consumer price index (CPI) reading. Rising rents, gas and food pushed May’s CPI up by 1.0%, bringing the year-over-year inflation rate to 8.6%, the highest reading in 40 years. The U.S. consumer credit rose to $38.1 billion, above consensus estimates and the third straight month of gains in consumer borrowing above $30 billion. U.S. unemployment claims increased by 27,000 to a five-month high of 229,000 during the first week of June, but appears to be linked to Memorial Day hiring. Consumer sentiment fell to a record low of 50.2 in the University of Michigan’s preliminary June reading as rising costs and expected monetary tightening has weighed on consumers. Japan’s government and central bank expressed concern as the sharp decline of the Yen has brought it to its lowest level in two decades versus the U.S. dollar.

 

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