Blog Post

Stocks Lower as Inflation Rises

Major stock indices ended the week substantially lower.  Friday saw the biggest drop following higher than expected inflation in May cementing the need for multiple rate hikes from the FED to slow the economy.  The FED meets this week with an expected rate increase of 0.5%.  However, some are expecting possibly a 0.75% increase.

The Biden administration had been looking to add tariffs to solar panel manufacturers in Cambodia, Thailand, Vietnam and Malaysia as China was found to be routing panels through these countries to circumvent U.S. tariffs.  It was announced this week that any tariffs on these countries will be postponed for two years due the global energy crisis.  Also, President Biden is invoking the Defense Production Act to boost domestic production of solar panels.  The actions were applauded by utilities and solar installers as the uncertainty over future tariffs was delaying new projects.  U.S. solar manufacturers criticized the actions as giving an unfair advantage to China.

The European Central Bank announced it will raise short term rates at its next meeting in July from -0.5% to -0.25% and quit buying bonds on July 1st.  They expect a “gradual and sustained path of further increases in interest rates.”

Treasury yields rose with the 30-year bond yield at 3.193% and the 10-Year note at 3.160%.  Mortgage rates rose with the 30-year mortgage rate ending at 5.62%.  U.S. crude oil rose to $120.64 a barrel and natural gas rose to $8.735 per MMBTUs.  The U.S. dollar index rose to 104.19.  Gold rose to $1875.60 an ounce.

In the economic numbers:

  • The Commerce Department reported that the U.S. Trade Deficit shrank 19.1% in April from March. 
    • Exports rose and imports fell. 
    • While consumer demand remained strong in April, businesses no longer need to build back inventories of many goods. 
    • Exports of food were especially strong with gains in oil and gas and civilian aircraft increases.
  • The World Bank lowered its forecast for global growth for 2022 to 2.9%, down sharply from its January estimate of 4.1%.  It estimated that there will be several years of higher inflation and lower growth.
  • IHS Markit reported its China services purchasing manager’s index rose from 36.2 to 41.4 as China slowly reopens from its strict lockdowns.
  • The Labor Department reported:
    • The consumer-price index rose 8.6% in May from a year ago, up from 8.3% year over year in April. 
      • This was the highest inflation reading in 40 years.
      • Core inflation, excluding volatile food and energy, rose 6.0% in May.
    • Seasonally adjusted first time claims for unemployment rose to 229,000, up from a revised 202,000 in the prior week. 
    • The 4-week moving average of claims, designed to smooth out volatility, rose to 215,000.
    • For the full unemployment report go here: .
  • The EIA weekly oil report is here: .  Also, the EIA reported in the prior week:
    • Field production of crude oil was unchanged at 11.9MM BPD.
    • Natural gas storage rose 97BN cubic feet and is below the 5-year average at this time of year.
  • Baker Hughes reported the number of active oil rigs rose 6 to 580.  The number of active natural gas rigs was unchanged at 151.

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Loren C. Rex, CFP®, MA                                                                     Erik A Smith, AIF®

Founder / Emeritus                                                                            President & C.E.O.                                                       

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Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.  Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor.  Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.

 These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  The Indices mentioned are unmanaged and cannot be invested into directly.


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