Stock markets suffered steep losses on heightened inflation fears this week – This week the May Consumer Price Index (CPI) report was released. It showed that consumer prices in May had increased 8.6% from one year ago. That was the highest reading in over forty years. It was widely felt that inflation was beginning to moderate because the CPI had decreased in April to 8.3%, down from 8.5% in March. Wages were not up as much in May as they were in April, and other core inflation indexes showed inflation was beginning to moderate. This new CPI report for May took investors by surprise as it revealed that inflation has not been tamed and that interest rate increases and other tightening measures by the Fed have not slowed inflation. Mortgage rates and bond yields which peaked in early May and had moderated over the last few weeks bounced back to their highest levels in over a decade.
The Dow Jones Industrial Average closed the week at 31,292.79 down 4.9% from 32,899.70 last week. It is down 13.9% year-to-date.
The S&P 500 closed the week at 3,900.86, down 5.1% from 4,108.54 last week. The S&P is down 18.2% year-to-date.
The NASDAQ closed the week at 11,340.02, down 5.6% from 12,012.73 last week. It is down 27.5% year-to-date.
U.S. Treasury bond yields - The 10-year treasury bond closed the week yielding 3.15%, up from 2.96% last week. The 30-year treasury bond yield ended the week at 3.20%, up from 3.11% last week. We watch bond yields because mortgage rates often follow treasury bond yields.
Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of June 9, 2022, for the most popular loan products were as follows:
The 30-year fixed mortgage rate was 5.23%, up from 5.09% last week.
The 15-year fixed was 4.38%, up from 4.32% last week.
The 5-year ARM was 4.12%, up from 4.04% last week. Rates rose on Thursday and Friday so next week's survey will show higher rates.
The MBA weekly mortgage application index declined by -6.5% for the week ending June 3rd. It is noted that the week's results do include an adjustment for the Memorial Day holiday. Purchase applications decreased -7.0% and were -21.0% lower than the same week a year ago. Refinance applications fell -6.0% and were -75.0% lower vs. the same week last year. "Weakness in both purchase and refinance applications pushed the market index down to its lowest level in 22 years. The 30-year fixed rate increased to 5.4 percent after three consecutive declines. While rates were still lower than they were four weeks ago, they remain high enough to still suppress refinance activity. Only government refinances saw a slight increase last week," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past months. These worsening affordability challenges have been particularly hard on prospective first-time buyers."
Initial Jobless Claims
Initial Jobless Claims rose +27k to 229k from a revised 202k in the prior week. The 4-week moving average of headline claims rose +8k to 215k, its highest since the week that ended February 5th. For comparison, the 4-week moving average on headline claims dropped as low as 170.5k back in early April, which was the lowest on record dating back to 1967. Continuing claims, which lag by a week, held steady at 1.306mln, revised from 1.309mln. The last two weeks' readings on continued claims have been the lowest since 1969. Overall, while job markets remain tight, its apparent that most of the top economic concerns right now (inflation, rising interest rates, war in Eastern Europe) are all still causing some stir.
The Conference Board's Employment Trends Index, a second-tier report, fell -.7% in May to 119.77 from an upwardly revised 120.6 back in April. According to the Board, "The labor market may have less room for more growth with overall employment down only -.5% compared to the pre-pandemic level. However, leisure and hospitality and in-person services industries have yet to fully recover job losses incurred since the pandemic. Employment growth is still expected in these industries as consumer continue to shift more spending away from goods and toward services." Within the report, half of the eight components made negative contributions, while four made positive prints.