Markets “In a Nutshell” for June 5, 2023
Investment Week at a Glance
Stocks finished higher for the week. The Dow Jones Industrial Average rose 2.00%, the S&P 500 was up 1.80%, and the NASDAQ rose 2.00%. Foreign stocks (MSCI EAFE) were down, falling 0.5%. Bond prices were up for the week, with the 10-year U.S. Treasury ending the week at 3.70%. (Data source: Wall Street Journal)
Unemployment rose to 3.7% in May, making it the 16th consecutive month the unemployment rate was under 4%, which is seen as full employment in the economy. This is the 4th longest streak since WWII showing the continued strength in the jobs market. 339,000 new payrolls were added in May, nearly doubling the estimates that analysts had given. Wage growth was the lowest it has been since June of 2021 which is good news on the inflation front as if wages slow, the consumer will not be able to spend as much, therefore, bringing inflation lower. This however is not good for the economy and GDP as the consumer will become weaker and this is the balance that has been a worry ever since we started seeing high inflation. This is the tough task the Fed must solve as they try and lower inflation without sending the economy into a deep recession. So far, they have been successful but if the jobs market begins to weaken more it could cause a worse recession than many are expecting.
Politics & Jobs Drive Markets Higher
A combination of the recent jobs report and the news on the debt-ceiling resolution gave the market some news to rally on. The S&P 500 is now up over 12% for the year, while the Dow Jones is back in positive territory for the year after being negative for a short time. With the risk of the debt ceiling past us, the market will once again turn its attention to inflation and recession worries. This puts the Fed back in the spotlight as another rate hike seems to be gaining steam as the Fed is set to meet next week. The inflation report for May will be released one day before the Fed begins its meeting. The inflation report could have a major impact on what the Fed does as they will get the most recent report to see where inflation stands currently. The Fed could also just “skip” this rate hike and raise rates in the next meeting which seems to be where the market is leaning.
When was the last time unemployment was under 4% for this long? (Scroll Down for Answer)
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4. 1967-1970. For 27 consecutive months between 1967-1970 the unemployment rate was under 4%. 4% unemployment is typically seen as full employment for the economy and is used as the benchmark in many cases.