Job openings in the United States fell in June to a nine-month low. The number of available positions decreased to 10.7 million in the month from an upwardly revised 11.3 million in May, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed Tuesday. The 605,000 decline was the biggest since April 2020. I’m sure this data has caught the Federal Reserve’s eye.
This week brings an interest rate decision from the Federal Reserve (75 basis point increase?), market reaction to the Russian attack on Ukraine’s major grain port, and earnings from Alphabet, Microsoft, Amazon, and Apple. Here’s my preview of what we might see–or at least what to look for–this week.
Initial claims for unemployment totaled 251,000 for the week ended July 16, up 7,000 from the week before, the Labor Department reported today, July 21. Economists were looking for 240,000 initial claims. That was the highest weekly number since November 13, 2021 The slight increase in initial claims is the latest sign that the tight labor market is getting less tight.
With the Federal Reserve in its quiet period ahead of the July decision on raising interest rates, I expect speculation will run wild and volatility will have a field day. (Or maybe that should be a field week.)
My one-hundred-and-fifty-seventh YouTube video “Inflation isn’t about to get better” went up today. Yesterday, we had new CPI inflation numbers, and the bar keeps pushing higher with annual inflation reaching 9.1% in June. I think if you are making investing plans based on an expectation that inflation will be getting better soon, you’re flat out wrong. Here’s why: the Russian invasion of Ukraine continues to drive up commodity prices across the board, which will keep having a huge impact on inflation numbers. People are now expecting a 1% increase in interest rates from the Fed at the July meeting. The size of that move is an indication of exactly how difficult the Fed thinks it will be to get inflation under control.
After Wednesday’s report that CPI inflation hit an annual 9.1% rate in June, a 100-basis-point interest rate increase at the Federal Reserve’s July 27 meeting is on the table. (Which is literally what Atlanta Fed President Raphael Bostic told reporters yesterday: “Everything is in play,” he said. Asked if that included raising rates by a full percentage point, he replied, “It would mean everything.)
It’s not the kind of historical comparison you want to hear. Inflation, as measured by the Consumer Price Index (CPI rose at a 9.1% annual rate in June. That was the highest annual rate since November 1981. (Just as the Volcker Fed was raising interest rates to 14% to finally break inflation.) Economists had been expecting inflation of 8.8%. Which would still have been an increase from May’s 8.6% headline rate.
I expect a BIG week for inflation numbers. Investors and traders will get the June report on Consumer Price Index (CPI) inflation on Wednesday, July 13. The CPI isn’t the inflation index that the Federal Reserve tracks, but it is an indication of where inflation measures that the Fed does follow, such as the Personal Consumption Expenditures index are headed. The Fed next meets to set interest rates on Wednesday, July 27. The market is expecting the U.S. central bank to raise interest rates by 75 basis points at that meeting. On July 8, the CME’s FedWatch Tool put the odds of a 75 basis point increase at 93%. Economists surveyed by Bloomberg expect that headline CPI inflation–that is inflation that includes food and energy prices–climbed at a 9% rate in June. That would be above the 8.6% headline rate reported in May.
The market is in the processing of pricing in a recession that’s either here or close to arrival. And now the big question is whether the Federal Reserve has the will to take a longer recession to get inflation under control or will begin cutting interest rates in early 2023.
In my opinion, this was the most important statement in the minutes from the Federal Reserve’s June meeting released today: Fed officials “recognized that policy firming could slow the pace of economic growth for a time, but they saw the return of inflation to 2% as critical to achieving maximum employment on a sustained basis.” Nothing guaranteed but the Jerome Powell Fed, commonly regarded on Wall Street as having no stomach for a recession, was signaling that it would continue to increase interest rates until it brought inflation under control even at the cost of a recession. That’s important because the current market consensus is predicated on the Fed quickly backing off on interest rate increases face of a recession. Recession soon, perhaps this quarter or the next, but then interest rate cuts in early 2023, the current story goes.
Stocks sold off heavily this morning with the Standard & Poor’s down 2% and the NASDAQ Composite off 1.9%. They have rallied in the afternoon so that the S&P 500 is up 0.16% and the NASDAQ is up 1.75% at the close. What we’re seeing is the current consensus at work.
The advice is sound, very sound. Move part (at least of your portfolio to cash and sit out the worst of this bear market on the sidelines. And since you have that cash in hand, you’ll be ready to snap up bargains when the market has put in a bottom (or near the bottom, or on the way up from the bottom…or something.) But right now that’s easier said than done.
