Fearless. Stocks bounced around throughout yesterday’s session, ultimately posting a mixed close while inflation fear was nowhere to be found. Meme stocks continued to rally leaving many seasoned investors wondering what will happen when the music stops… if it ever does.
N O T E W O R T H Y
That place between here and there. Is it Summer yet? I am sitting here at my same desk at the same time that, earlier in the year, I wrote about the green shoots of the economy as Winter gave way to the green shoots of early Spring. Birds began to sing, drowning out the caws of the crows of Winter. Spring had not quite sprung, and the economy, though standing, was not quite on its front foot just yet. Turning the calendar forward to today, the scene is quite different. For one, it is light out, so I can see the bustling activity in my garden. Squirrels chase each other up and down the trees, the hawks plan for their early morning flyovers, rabbits ply through the edges of the tall grass taking in as much as they can before the hawks fly, robins skip around the yard competing for the attentions of potential mates, and the cicadas are, thankfully, still resting allowing me to hear the lush birdsong of early morning. In the Northeast it has been hot and humid, but that hasn’t stopped people from getting out in an attempt to regain some normalcy after 15 months of mostly solitude. Every day, the sun is rising higher, shining brighter, making temperatures run hotter. The economy too, is getting stronger, picking up strength, and rising from its slumber. The trillions of stimulus dollars injected into the economy are being spent by consumers and corporations, ensuring a strong economic recovery. A side effect of all that necessary spending is, of course, much-maligned inflation. Businesses are coming back to life, seeking to refill job vacancies. Yesterday, the Bureau of Labor Statistics announced an all-time record 9.286 million job openings, topping economists’ expectations. The bulk of the job openings are in Retail Trade, Accommodations / Food Services, and Professional / Business Service, as would be expected. Record job openings accompanied by high unemployment is a sign that labor costs may be going higher… it is looking like a job-seeker’s market. The side effect of the current labor market may be inflation as well. It is not a secret that inflation is here now and it will continue for some time. How long and how high remain the big questions of the day for not only folks on fixed incomes feeling the pinch, but also investors who fear higher interest rates. The Fed has been firmly holding open the monetary stimulus flood gates for some time, insisting that some inflation is necessary and that it will likely be transient. So far, stock investors are believing the Fed’s thesis, and stocks remain on the climb, though at a tepid pace. Tomorrow we will get the latest Consumer Price Index readings which are expected to continue to show rises in prices. The Fed has repeated its mantra that it will not raise rates anytime soon, though it has been cautious not to signal any intentions for its $120 billion / month bond buying program. The bond buying is another way of injecting cash into the banking system while keeping yields low. No words yet on when any tapering may happen, however there was a notable body language change in this past month’s Fed speaker parade. Next week, the Fed’s FOMC will convene its June policy meeting. Though interest rates and bond purchases are largely expected to remain unchanged, Fed watchers will be interested to learn if the body will begin to ponder the timing of any changes. The Fed will more than likely discuss the rising inflation numbers along with the stubbornly tight labor market. Details of the Feds proceedings won’t be made public until July 7th, when the meeting minutes are released. The Fed Chairman will hold a press conference following next week’s meeting during which he will certainly be grilled on his thoughts on tapering, hiking, and inflation. Many economists agree with the Fed that inflation will continue to run hot for the 3rd quarter and begin to moderate in the 4th, but still remain high by historical standards. Regardless, the Fed alone has the power to make policy decisions, and all eyes are squarely fixed on the central bankers. Regarding tightening, it is not a question of if, but rather when. All of this tells me that it is going to be a long hot summer for not only the flora and fauna in my garden, but also for the economy. Solstice happens on June 20th… Summer has not even technically begun yet. Stay cool.
Stocks had a mixed closed yesterday as investors awaited the inflation figures due out tomorrow morning. The S&P500 added a scant +0.02%, the Dow Jones Industrial Average slipped by -0.09%, the Nasdaq Composite Index climbed by +0.31%, and the Russell 2000 Index jumped by +1.06%. Bonds traded higher and 10-year treasury yields fell by -3 basis points to 1.53%.
– This morning, the weekly MBA Mortgage Applications (June 4) indicated a weekly decline of -3.1% after falling by -4.0 in the prior week.
– DOE Crude Oil Inventories (June 4) may have fallen by -2.892 million barrels after falling by -5.079 million barrels in the prior week.
– Earnings are expected from RH and GameStop after the bell.
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