May jobs data beat expectations

28th May – 3rd June 2022 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
4,108.54	12,012.73	24.79	32,899.70	2,258.52	15,797.17
-1.20%	-0.98%	-3.62%	-0.94%	-1.18%	-0.91%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
16,584.30	$1,853.90	$21.94	$121.08	77.69	83.29
1.42%	0.18%	-0.90%	4.99%	0.06%	-0.09%

Source: MarketWatch

Hello Saturday,

This week oil prices rallied above $124 per barrel over EU’s new sanctions, May jobs report data beat expectations pushing US Treasury yields to a two-week high, and global stocks fell. 

• Federal Reserve’s economic survey report reveals economic growth but at a slowing pace
• Quantitative tightening to begin this month to reduce the money supply in the economy
• Meta’s Chief Operating Officer Sheryl Sandberg steps down
• An energy crisis worse than that of the 1970s may be approaching 
• Semiconductor shortage to begin easing as a result of decreasing demand  

Taking stock | No jiggle jiggle | It folds | Goodbye, Sheryl | That ‘70s show? | No ICing on the cake | Invest wisely

Taking stock 

US stocks that had just begun to gain ground ended lower on Friday after a strong May jobs report signalled that the Federal Reserve would continue to take steps to curb the surging inflation. All the major indices ended the week in the red – S&P 500 fell 1.20%, the Dow 0.94%, and Nasdaq 0.98%. 

No jiggle jiggle

The Beige Book was released by the US central bank on Wednesday, which is essentially a survey of the economic conditions across the 12 Federal Reserve districts and is released eight times a year. While all 12 districts have shown growth since the last Beige Book, the impact of interest rate hikes, ongoing supply chain disruptions due to COVID-19, higher prices, and labour shortages is apparent. 

While strong growth is expected this quarter, the Beige Book shows signs that the economy is losing its momentum over a longer term. Overall, economic uncertainty is expected to continue. Several companies are cutting spending and pulling back investments. Concerns about an upcoming recession have been expressed by three districts in the report as well. This week there have also been warnings about the direction the economy is headed from Tesla CEO Elon Musk who plans to lay off 10% of his employees. Musk is not alone; earlier this week, JPMorgan Chase’s Chairman and Chief Executive warned investors to brace themselves for an economic hurricane. 

It folds

This week the Federal Reserve also started allowing its bonds to mature with no plans to replace them and thus beginning Quantitative Tightening (QT). QT is a contractionary monetary policy that aims to reduce the supply of money in the economy. This along with the interest rate hikes is going to reduce liquidity in the market. The Federal Reserve plans to shrink its balance sheet by $47.5 billion for three months followed by $95 billion per month thereafter. As per the Wells Fargo Investment Institute, by the end of 2023, the central bank’s balance sheet could shrink by almost $1.5 trillion. This could translate to another 75 to 100 basis points of tightening of the fed funds rate.

Goodbye, Sheryl 

In a Facebook post on Wednesday, Sheryl Sandberg, the Chief Operating Officer of Meta Platforms Inc., announced that she was leaving the company after 14 years. It was Sandberg who brought the required management experience that helped Zuckerberg turn Facebook from a startup to a tech giant. Meta’s stock went down by 4% immediately after this announcement but the stock almost flattened in after-hours trading and rose 5.4% the next day. This marks an end of an era for the company as it shifts its focus toward the metaverse and hardware products. Javier Olivan, the Chief Growth Officer, will be taking over Sandberg’s role. 

That ‘70s show?

Earlier in the week, the EU agreed to ban 90% of all Russian oil imports by 2023 and oil prices rallied to over $124 per barrel. On Thursday, OPEC+ agreed to a larger increase in production than earlier agreed for July and August, but oil prices continued to rise as US’s crude inventories fell more than expected amid surging demand. As the world continues to struggle with energy price hikes, many in the industry fear that an energy crisis like that of the 1970s is looming. This time, however, it’s beyond oil – a gas and electricity crisis is also expected and has the potential to be bigger and last longer compared to the one in the 1970s.

No ICing on the cake

The semiconductor shortage that has persisted over the last 18 months is finally beginning to ease. But this news does not bode well for companies in the tech supply chain and China’s economy as the easing of the shortage is coming from a reduction in demand. Consumer electronics shipments have been falling on a year-over-year basis already – PC shipments fell by 5.1% and smartphone shipments by 8.9% in the first quarter. 

Invest wisely

Just when the markets had broken free from their long losing streak, May’s data on jobs pushed them back down. Volatility is expected to continue and this is why diversification is more important than ever before. As you look at diversifying across asset classes, you should also add international exposure to your portfolio. You can do this in just a few clicks by downloading the Appreciate app.

Warm regards,
Another week
in the markets