Below is a market update as of June 16th, 2020.
Federal Reserve to Keep Rates Low
Last week, the Federal Reserve met and unanimously voted to leave short-term rates unchanged but will “increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.”
Here is what the Fed said about the economy and its outlook, but the phrase “over the medium term” was generally considered to have helped push U.S. stock markets to their worst weekly performance since March:
“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
Retail Sales Jump
The U.S. Census Bureau conducts the Advance Monthly Sales for Retail Trade and Food Services Survey to provide an early estimate of monthly sales for retail and food service firms nationwide. Each month, questionnaires are mailed to a sample of about 5,500 firms selected from the larger Monthly Retail Trade Survey.
On Tuesday, the Census Bureau released the following:
- Advance estimates of U.S. retail and food services sales for May 2020 increased 17.7% from the previous month, but are 6.1% below May 2019
- Total sales for the March 2020 through May 2020 period were down 10.5% from the same period a year ago
- Retail trade sales were up 16.8% from April 2020, but 1.4% below last year
- Non-store retailers were up 30.8% from May 2019, while building material and garden equipment and supplies dealers were up 16.4% from last year
The June 2020 Advance Monthly Retail report is scheduled for release on July 16, 2020 at 8:30 a.m. EDT.
Deflation on the Horizon?
Last Wednesday, the Department of Labor released CPI numbers for May and there was worry about deflation. You will remember that deflation is defined as a decrease in the general level of prices for goods and services (whereas inflation, on the other hand, is an increase in the general level of prices for goods and services).
The U.S. Bureau of Labor Statistics reported that:
- The Consumer Price Index for All Urban Consumers declined 0.1% in May on a seasonally adjusted basis after falling 0.8% in April
- Over the last 12 months, the all items index increased 0.1% before seasonal adjustment
As an example, we are currently experiencing big deflation in the price of gasoline, because as of June 15th, a gallon of gas has decreased by 59 cents from a year ago, according to AAA. But gasoline only makes up about 3% of the total CPI calculation, so that’s a positive (plus, it appears as if the price of gasoline is trending up, as since June 15th, the average price moved up seven cents in a week and 24 cents over the past month).
The worry is that deflation is now a real possibility as this is the first time in over 60 years that core CPI has dropped for three consecutive months.
Sources: census.gov; bls.gov; gasprices.aaa.com