Stocks have turned in the worst first half to a year in fifty years as the second quarter wraps today with inflation sitting at a 40-year high.  The S&P 500, the broadest measure of stocks, is down nearly 18% this year the worst since 1970.  Which makes 2022 the fifth-worst half performance on record. 

Inflation held at stubbornly high levels in May, though the monthly increase was slightly less than expected, according to a Commerce Department gauge that is closely watched by the Federal Reserve.  Core personal consumption expenditures prices rose 4.7% from a year ago, 0.2 percentage point less than the previous month but still around levels last seen in the 1980s.   Headline inflation, however, shot higher, rising 0.6% for the month, much faster than the 0.2% gain in April. That kept year-over-year inflation at 6.3%, the same as in April and down slightly from March’s 6.6%, which was the highest reading since January 1982.  In addition, the report reflected pressures on consumer spending, which accounts for nearly 70% of all economic activity in the U.S.

Slightly fewer Americans applied for unemployment benefits last week, reflecting a robust job market despite rising job cuts in some sectors of the economy that have cooled in recent months.

Home price increases slowed ever so slightly in April, but it is the first potential sign of a cooling in prices.  Prices rose 20.4% nationally in April compared with the same month a year ago, according to the S&P CoreLogic Case-Shiller Index. In March, home prices rose 20.6%. The last slight deceleration was in November of last year.  Cities in the South continued to see the strongest monthly gains, including Charlotte, Tampa, Atlanta, Dallas, and Miami.

The Conference Board's latest reading on consumer confidence showed consumer expectations in June fell to their lowest level since 2013.  The Conference Board's consumer confidence index for June fell to 98.7 from 103.2 in May.  The report's expectations index, which is based on consumers' short-term outlook for income growth, the job market, and overall business conditions, fell to 66.4, its lowest reading since March 2013.

Nike said demand for sneakers and sportswear largely held up in their latest quarter, despite a Covid lockdown in China and a tougher consumer environment in the U.S.  But the company said challenges such as higher transportation costs and longer shipping times are persisting.  Shares are trading lower, despite the company topping Wall Street’s earnings and sales expectations.  Nike anticipates current quarter revenue will be flat to slightly up versus the prior year, as they continue to manage Covid disruption in Greater China.
 

Contracts to buy U.S. previously owned homes unexpectedly increased in May after declining for six straight months, but higher mortgage rates are cooling demand for housing.  The National Association of Realtors said their Pending Home Sales Index, based on signed contracts, rose 0.7% last month, rebounding from a two-year low in April. Pending home sales increased in the Northeast and the densely populated South, but fell in the West and Midwest. The average contract rate on a 30-year fixed-rate mortgage increased last week to more than a 13-1/2-year high of 5.81%, from 5.78% in the prior week.

New orders for U.S. manufactured durable goods increased by more than expected in the month of May, according to a report released by the Commerce Department.  The report showed durable goods orders climbed by 0.7 percent in May after rising by 0.4 percent in April.

Russia has entered its first major foreign debt default for over a century, after a grace period on two international bond payments lapsed on Sunday night.  Interest payments totaling $100 million were due on May 27 and subject to a grace period which expired on Sunday night.  Several media outlets have reported that bondholders have not received the payments, after Russia’s attempts to pay in its ruble currency were blocked by international sanctions.

A widely followed consumer sentiment survey released showed inflation expectations have eased slightly.  The University of Michigan’s Surveys of Consumers said consumers expect inflation to rise at a 5.3% annualized rate as of the end of June. That’s down from a preliminary reading released earlier this month. Meanwhile, overall consumer sentiment fell to a record low, hitting 50. That’s 14.4% below a May reading of 58.4 and 41.5% from a year-earlier period.  Consumers across income, age, education, geographic region, political affiliation, stockholding and homeownership status all posted large declines.  About 79% of consumers expected bad times in the year ahead for business conditions, the highest since 2009. Inflation continued to be of paramount concern to consumers; 47% of consumers blamed inflation for eroding their living standards, just one point shy of the all-time high last reached during the Great Recession.

U.S. new home sales rose 10.7% to a seasonally-adjusted rate of 696,000 in May, from a sharply revised 629,000 in the prior month.  Year-over-year, new home sales are down 5.9%.  The median sales price of new homes sold in May fell to $449,000 from a record high $454,700. The supply of new homes for sale fell 7.2% between April and May, equating to a 7.7-month supply.   Regionally, sales fell drastically in the Northeast by 51.1%, followed by the Midwest, which saw an 18.3% drop in new home sales. The South and the West on the other hand saw increases in sales, at 12.8% and 39.3% respectively.  Despite the higher sales numbers, the housing sector is in the midst of a slowdown, with mortgage rates soaring past 5.8% for a 30-year fixed-rate mortgage.

Los Angeles’ first crypto themed restaurant that only accepted crypto not longer accepts crypto currency as a form of payment stating that the volatility of the currency made it too hard to do business with.

The stock market, as measured by the S&P 500, tumbled more than 3 percent yesterday, dragging it deeper into bear market territory. This morning, futures markets suggest there will be a rebound, but the S&P is still well on track to record its 10th weekly decline of the past 11 weeks.

Bull markets are often said to climb a wall of worry, with occasional slips along the way. When bear markets rappel, there are also periodic pauses for breath. That has been the theme of late, with investors veering from relief that policymakers are taking aggressive actions to rein in inflation to fear about the effect those actions may have on economic growth.

In all, the drop in stocks this year has erased about $12 trillion in value from investors’ portfolios. That’s already more than the $8 trillion decline in 2008, during the most severe financial crisis in a century, although on a percentage basis the 2008 drop was bigger. Over time, the rise and fall of stocks can propel and drag the economy via something economists call the wealth effect — when people feel poorer, even if their losses are mostly on paper, they may not spend as much, denting the economy.

The Federal Reserve yesterday launched their biggest broadside yet against inflation, raising benchmark interest rates three-quarters of a percentage point in a move that equates to the most aggressive hike since 1994.  Ending weeks of speculation, the rate-setting Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5%-1.75%, the highest since just before the pandemic began in March 2020. Fed Officials also significantly cut their outlook for 2022 economic growth, now anticipating just a 1.7% gain in GDP, down from 2.8% from March.

Confidence among U.S. single-family homebuilders dropped to a two-year low in June as high inflation and rising mortgage rates reduced affordability for entry-level and first-time buyers.  The National Association of Home Builders Market index fell two points to 67 this month, the lowest reading since June 2020. It was the sixth straight monthly decline in the index.

There are more Oregonians in the labor force now than any time in the past decade, underscoring the job market’s extraordinary recovery from the pandemic recession.  Labor force participation hit 63.5% in May, according to data out from the Oregon Employment Department. Oregon added 6,200 jobs in May, and the unemployment rate dropped by a tenth of a point to 3.6%.

U.S. retail sales registered a bigger-than-expected drop in May as record gasoline and food prices prompt households to cut back spending. The Commerce Department reported that retail sales fell 0.3% last month, down sharply from April's downwardly revised 0.7% increase. May's print also marked the first decline in five months.

The National Federation of Independent Business Optimism Index fell in May to 93.1, marking the fifth consecutive month below the 48-year average of 98. Owners expecting better business conditions over the next six months decreased four points to a net negative 54%, the lowest level recorded in the 48-year-old survey. Expectations for better business conditions have deteriorated every month since January.  Twenty-eight percent of owners reported inflation was their single most important problem in operating their business. The net percent of owners raising average selling prices increased two points to a net 72%.

All eyes will be on the Federal Reserve’s key interest rate decision later today.  The markets are expecting a .50% rate hike, but will be more focused on what the Fed chairman says about future rates hikes.
 

The 2022 stock sell-off intensified yesterday with the S&P 500 tumbling to a fresh low for the year and is now in bear market territory as recession fears grow ahead of a key Federal Reserve meeting later this week.  The S&P 500 fell 3.9% to its lowest level since March 2021, bringing its losses from its January record to more than 21%.

Bitcoin tumbled below $24,000 and hit its lowest level since 2020 as risk-averse investors continued to dump crypto as rates rise. The news sent shared of crypto-related companies including Coinbase and Microstrategy down 13% and 29%, respectively.  Amid a broader sell-off in all cryptocurrencies that erased more than $200 billion from the entire crypto market in a single day.

Mortgage rates have risen to levels not seen since 2008.  The average rate on a 30-year fixed rate mortgage hit 6.13%, according to mortgage news daily.  We started the year at 3.25%, that means the average payment on a $400,000 house went from $1,400/month at the beginning of the year to $1,945/month now.
 

The consumer price index rose 8.6% in May from a year ago, the highest increase since December 1981. Core inflation excluding food and energy rose 6%. Both were higher than expected. Surging food, gas and energy prices all contributed to the gain, with fuel oil up 106% over the past year.  Shelter costs, which comprise about one-third of the CPI, rose at the fastest 12-month pace in 31 years. The rise in inflation meant workers lost more ground in May, with real wages declining 0.6% from April and 3% on a 12-month basis.

DocuSign went deep into the red in after-hours trading on Thursday as the stock cratered as much as 26% following weaker-than-expected Q1 results. EPS fell well short of estimates though revenue topped projections. Before adjustments, the electronic-signature tech company also reported a net loss that widened for the quarter. As interest rates normalize, there has been a shift away from a focus on growth to profitability. DocuSign put up some strong growth early on in the pandemic, given the increase in online transactions, but business has slowed in recent quarters.  

The national average price at the pump has surpassed $5.00 per gallon, according to GasBuddy, an industry consultant that surveys prices at more than 150K stations nationwide.
 

Apple is making its biggest move into finance by offering loans directly to consumers for its new “buy now, pay later” product, taking on a role played in its other lending services by banking partners such as Goldman Sachs. Short-term loans made through the iPhone maker’s new Apple Pay Later service will be made through a wholly owned subsidiary, Apple Financing LLC. Apple Pay Later, which will be managed through the Wallet app that comes pre-installed on every iPhone, will be accepted by millions of US retailers. Big Tech’s move into the core banking business has been long feared on Wall Street after years of an uneasy alliance in areas such as mobile payments.

The energy sector clung to gains yesterday and ended as the only winner in the S&P 500, with WTI crude oil rising to a 13-week high and settling above $122 a barrel. The gains follow U.S. government data that showed gasoline stockpiles declining for the tenth straight week, and crude in the Strategic Petroleum Reserve falling by a record amount. As inflated prices continue to be seen at the pump, shares of Exxon Mobil notched an all-time high for the first time since 2014, while Chevron and Valero posted similar records.

Jobless claims for the week ended June 4 totaled 229,000, well ahead of the 210,000 Dow Jones estimate. The four-week moving average for continuing claims, which helps smooth out volatility in the numbers, remained around its lowest level since 1970.
 

Fears of stagflation continue to surface as multiple entities caution about rocky upcoming months or even years ahead. The latest warning came from the World Bank, which downgraded its estimate for 2022 global growth to 2.9%, from a forecast of 4.1% back in January.

Retail earnings have been incredibly scattershot in May and June, with winners and losers seeing wildly differing share reactions and revealing important insights on specific subsectors. One of the biggest losers has been Target , whose share price has tumbled 30% since reporting Q1 results on May 18. Earnings came in far from the bullseye after higher costs whacked profitability, but the company had another surprise in store for investors after slashing guidance again yesterday.

Mortgage rates are back on the upswing, after a brief decline in May, and the housing market is still suffering from a lack of listings. As a result, mortgage demand continues to drop. Total mortgage application volume fell 6.5% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand hit the lowest level in 22 years.The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.40%

SEC chair to set out overhaul of US equity market The Securities and Exchange Commission is exploring an overhaul of US stock market rules to strengthen competition and ensure individual investors are fairly treated after the explosion in retail trading during the pandemic. Gary Gensler, SEC chair, is said to have settled on several potential proposals, including the creation of an auction system designed to increase competition between services. The rules would effectively make frontrunning impossible and obsoleting the entire microwave/laser trading industry which is meant to do just one thing: trade ahead of slower retail investors. 

Shares of Amazon jumped and ended the session up 2% at $125, following a rare 20-for-1 stock split that went into effect. The last time the company split its shares was before the dot-com bubble in 1999, and since then, the stock has returned over 3,000%. Alphabet, Apple and Tesla have also turned to splits recently, with the trend making somewhat of a comeback during the pandemic.

Things are getting chaotic in the Elon Musk-Twitter saga after the billionaire warned that he could walk away from the $44B acquisition if the platform does not provide detailed information on spam and fake accounts. It's even more interesting as Elon Musk didn't want to do any extensive due diligence when abruptly announcing the deal back in April

Apple is slated to kick off its annual Worldwide Developers Conference at 1:00 p.m. in New York and expectations are that it will be a jam-packed affair, with a number of software updates and perhaps one or two surprises. While WWDC never commands as much of a spotlight as Apple's annual iPhone event, new software features can have profound effects, especially as investors grow concerned about traditional hardware sales. Shortages, factory shutdowns and supply chain issues remain headwinds for the company, which may need to highlight its high-growth services category to keep shareholders excited.

Amid the fanfare of U.S. President Joe Biden’s new Indo-Pacific strategy, China flew under the radar and hosted a high-level discussion on RCEP, the world’s largest trade pact. It came days after the Biden administration launched the Indo-Pacific Economic Framework, or IPEF — a partnership which involves 13 countries, excluding China, as the U.S. seeks to expand its political and economic leadership in the Indo-Pacific region. RCEP includes China and the 10-member ASEAN bloc, together with Australia, Japan, South Korea and New Zealand.

Abbott has restarted production of baby formula at its Sturgis, Michigan, facility that had been shut down for months over contamination concerns that were linked to the possible deaths of at least two infants. Abbott's factory produces about one-fifth of all infant formula in the U.S.,

The U.S. economy added 390,000 jobs in May, better than expected despite fears of an economic slowdown and with a roaring pace of inflation.  At the same time, the unemployment rate held at 3.6%, just above the lowest level since December 1969.

New orders for U.S.-manufactured goods increased less than expected in April, but demand for products remains strong, which should help to keep factories humming.  The Commerce Department said that factory orders rose 0.3% in April after advancing 1.8% in March.  Manufacturing, which accounts for 12% of the U.S. economy, is being pinned by still strong demand for goods even as spending shifts back to services.

Tesla CEO Elon Musk has a “super bad feeling” about the economy and needs to cut about 10% of jobs at the electric carmaker, he said in an email to executives seen by Reuters.  The message, sent on Thursday and titled “pause all hiring worldwide”, came two days after the billionaire told staff to return to the workplace or leave, and adds to a growing chorus of warnings from business leaders about the risks of recession. Tesla employed almost 100,000 people at the company and its subsidiaries at the end of 2021

A report from the Financial Times overnight suggested that Saudi Arabia told the West it was prepared to raise oil production if Russia's output fall substantially under the weight of sanctions. It's an interesting turn for the Kingdom, which has resisted calls to increase production despite oil trading at decade highs.  Before coming into office, President Biden vowed to make a "pariah" out of Saudi Arabia's ruling family, Relations between the two nations haven't improved since, with the Kingdom rebuffing every U.S. call to pump more crude. 

Private payrolls increased by just 128,000 in May, the lowest gain of the pandemic-era recovery, according to ADP.  Small business took the biggest hit during the month, as companies employing fewer than 50 workers reduced payrolls by 91,000. Leisure and hospitality, the sector most hit most by restrictions and which has been a leader throughout the recovery, saw new hires of just 17,000. Weekly jobless claims fell to 200,000, a sign that while hiring may be slowing, layoffs are not accelerating.

Ford Motor said Thursday that its U.S. sales fell just 4.5% in May from a year ago, a narrower decline than in recent months, as it continued to see white-hot demand for its latest vehicles amid tight supplies of new cars, trucks, and SUVs.

A survey of consumer confidence fell slightly in May to a three-month low, reflecting worries about high inflation and a slowdown in the economy.  The U.S. economy is still growing, but government spending has tapered off and high inflation is forcing the Federal Reserve to jack up interest rates. Higher rates could eventually slow the economy.  On the flip side, the strongest labor market in decades and rising wages have offset some of the damage from high inflation and allowed consumers to keep spending. Consumer spending is the main driver of the U.S. economy.

A slew of Chinese stocks listed in the U.S. rallied after the country’s COVID lockdown measures eased.  The lockdown in Shanghai was announced in March and had been an overhang for the Chinese stock market.

Energy stocks rose along with oil prices after an agreement from European Union leaders to ban most crude imports from Russia stoked inflation fears. 

The consumer products giant Unilever saw their stocks jump 9.4% after they named activist investor Nelson Peltz to their board. The CEO and founding partner of Trian Fund Management acquired a 1.5% stake in the company.