Market Perspective for June 5, 2022

With the absence of any major news, the stock market was a little less volatile this past week. The markets closed down for the week amid continuing worries about inflation and how aggressive the Federal Reserve will be.

Even with a positive jobs report on Friday, the stock market dropped. The Dow Jones Industrial Average lost 1.1 percent, the S&P 500 fell 1.6 percent, and the NASDAQ lost another 2.5 percent Friday.

For the week, the Dow lost 0.9 percent, the S&P 500 fell 1.2 percent, and the NASDAQ dropped 1.0 percent. These indexes continue to be down for the year, with the DJIA down 9.5 percent, the S&P 500 down 13.8 percent, and the NASDAQ down 23.2 percent.

In other markets, West Texas Intermediary crude oil climbed higher last week to close at $120.26. The spot price for gold was down $17.70 to close at $1,853.70 per ounce. Bonds closed at $102.77, down another 1.3 percent for the week and now down 9 percent for the year.

The May jobs report came out better than expected, with the U.S. economy adding 390,000 jobs in May. This is good news considering recession fears due to rising inflation. The unemployment rate stayed at 3.6 percent, which is just above the lowest level since December 1969.

Economists had expected nonfarm payrolls to increase by 328,000 for May. The total job number for May was lower than the revised 436,000 in April, making this the lowest monthly gain in jobs since April 2021.

Despite the good job numbers, total employment remains 440,000 below the pre-Covid level. Labor force participation rose slightly to 62.3 percent, which is 1.1 percent below pre-pandemic levels in February 2020.

The job market continues to be healthy in spite of recession fears, which some say could cause hiring freezes. Hiring is running at more than double the pace that it was in 2018, the last time the Federal Reserve raised rates.

The average hourly earnings increased 0.3 percent from April, which is a little less than the 0.4 percent that was estimated. The year-over-year wage increase of 5.2 percent is in line with expectations.

The good job report could be a sign that there will be no recession in the near future. Good employment numbers are good for consumer spending. And no recession in the last 50 years, other than the pandemic recession, has ever begun with an unemployment rate that was below 4 percent.

The labor market remains tight, with almost two job openings for every unemployed person. The ratio of unemployed people to job openings is 0.5. This ratio was well above 1 when looking back at the recessions of 2001 and 2007.

The Institute for Supply Management Services Index (ISM) report came out at 55.9, down from April’s 57.1. That is lower than the estimate of 56.5, but it still shows expansion. A reading above 50 shows an expansion in activity.

After dropping for the past three weeks, mortgage rates jumped last week. The 30-year fixed mortgage hit 5.36 percent last Monday and climbed to 5.47 percent on Tuesday. The current rate for a 30-year fixed-rate mortgage is around 5.39 percent.

Applications for mortgages continue to drop, down 1 percent last week compared to the previous week. Mortgage demand is now at the lowest level since December 2018. Volume is now 14 percent lower than the same week one year ago.

Even though there are fewer mortgage applications, home prices continue to rise because of the continuing low supply of homes on the market. Of course, those buying homes with all-cash offers aren’t applying for mortgages.

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