There was a whopping jobs report released on Friday, which showed that 172,000 net new jobs were created in May – about twice what was expected. The unemployment rate remained unchanged at 4.3%. Yay, great news! Oh wait. Good news is bad news – again. Markets slumped considerably on Friday as investors realized that, in combination with rising inflation, strong jobs numbers will lead to higher interest rates, NOT the falling rates for which this administration is lobbying.
Savers like rising rates. Borrowers, of course, do not. And one of the biggest borrowers out there is the U.S. government, which has to sell Treasurys of various durations in order to fund its massive debt. If you are curious about the difference between our debt and our deficit, remember that our debt is everything we owe, while our deficit is the difference between THIS YEAR’S federal income and THIS YEAR’S federal spending. It is a one-year number. The U.S. fiscal year runs October 1st through September 30th.
The war with Iran is also still a major factor on stocks. And the stock indices have been responding up and down to news that the war is over, the war is expanding, the Strait is closed, the U.S. is escorting tankers through the Strait, Israel has signed a treaty with Lebanon, there are no material negotiations ongoing. Your guess is as good as mine. (Probably. Are you a military expert? Then your guess is much better than mine.)
Before Friday’s stock slide, markets were again making new incremental highs last week. And also pulling back slightly on news of oil prices rising, and on Friday, the chip stocks lead the rout, as those companies are borrowing tons of money to build data centers, hog all the freshwater, and create AI threats to humanity. But hey, those recaps of my emails are pretty sharp.
So, we must ask the question that has recurred for several weeks now, maybe months. Why are equity markets (and bond markets to a lesser degree) rising overall during such troubled times? Well, one answer may be the K-shaped economy. The K-shape is meant to describe that upper-income households are doing better, while middle- and lower-income households are struggling. The upshot of this discrepancy is that consumer spending remains strong (buoyed by the wealthy) even while working families are facing inflation that is now running hotter than wage gains.
If you own stocks (probably mutual funds) in your retirement accounts, you are unlikely to sell based on market conditions, because you have limited access to those funds. If you have discretionary ownership of stocks, you are probably not selling them because they’re doing great and you don’t need the money (see the K-shaped economy, above). A correction is coming, but no one knows when. Make sure your conservative allocations are in place!
We keep hearing that 20% of the world’s oil is shipped through the Strait of Hormuz. So why aren’t oil prices higher? One big reason is that the Chinese have made a major shift away from fossil fuels, cutting their demand for oil by up to 9%. AND they’ve got more than one billion barrels in storage. Europe is following suit in terms of renewable energy. Plus, oil traders really really want to believe that the Strait will reopen soon.
A quick word about bitcoin (down by about half since October) and gold (down about 18% since January). Clearly money has moved from both “safe havens” into stocks during the recent equity climb. Will they rise if stocks start falling? Don’t know, but I do know that bitcoin fund Strategy just had to sell some of its coins in order to pay its dividend.
According to LiveScience, there were yeast growing on the body of Otzi the Iceman when he was discovered in the Alps in 1991, 5,300 years after his death. The yeast had been feeding on his frozen remains. Now scientists have used the yeast to make sourdough bread, which they describe as “very very good.” Thank you, no. You go first.
For the week ending on June 5th, the S&P 500 finished at 7,383, the Nasdaq Composite at 25,709, and the Dow Industrials at 50,866. The yield on the ten-year Treasury Note closed at 4.536%. U.S. oil (WTI crude) cost $90.81 per barrel, while international Brent crude cost $86.24 per barrel. New York gold cost $4,334.49 per ounce, while one Euro was worth $1.15.
Elizabeth E. Cook
Partner, Diastole Wealth Management
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Morning Brew, Yahoo Finance, Barron’s, AFP News, CNBC, The Economist, The Wall Street Journal, Axios, Fortune, Business Insider, Reuters, Bureau of Labor Statistics, The AP, Bloomberg, USA Today, CNN, The New York Times, and LiveScience. If you have questions, please call Diastole at 203.458.5220, or email me, Liz Cook, at ecook@dwinvest.com. Thanks for reading!
Serena Williams is making a tennis comeback. The 44-year-old already has 23 Grand Slam singles titles, but she will be playing doubles at an upcoming tournament in London. Williams says she wants her children to see her play. Half a lifetime ago, I stayed up pretty late on Friday nights. Don’t think I could do it again. You go, Serena!