Welcome to CrushTheStreet.com’s Weekly Market Wrap-Up!
Our top story of the week is the Federal Reserve and its impact on the U.S. equities sector, which has fallen flat over the past several days following last week’s record-breaking run in the broader markets. Thursday’s focus centered on comments made by James Bullard, president of the Federal Reserve Bank of St. Louis, who stated that interest rate increases should come sooner rather than later. Mr. Bullard, in an interview with Fox Business News, reiterated his opinion that raising rates by the end of the first quarter of 2015 would be the appropriate course of action, based on a jobs forecast that sees unemployment falling below 6-percent and inflation likely to rise back to 2-percent.
Unfortunately, reality tells a drastically different story. Much of the numbers that go into the Labor Department’s calculation, with the most recent example being the 6.3-percent unemployment rate reported on June 6th, ignores critical data, namely a metric with the ambiguous term, “U-6.” According to the Bureau of Labor Statistics, the “U-6” defines unemployment as “total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers.” In laymen’s terms, the U-6 is a comprehensive definition that includes the underemployed and the discouraged.
Contrary to Mr. Bullard’s implied optimism, the U-6 rate remains stubbornly high, dropping down slightly to 12.2-percent for month of May. Although this is a notable improvement over rates experienced last year when the U-6 popped above 14%, it’s a far-cry from where the economy needs to be in order to make the recovery story believable.
Market participants were unimpressed with the latest statement from the Fed, with six of the 10 S&P 500 sectors slipping into negative territory. Of the laggards, the financial sector was the hardest hit, dropping three-tenths of a percent. The CBOE Volatility Index, Wall Street’s so-called fear barometer, edged up 4-tenths of a percent to 11.63, roughly half its historical average, a condition that many analysts were expecting given the market’s recent highs.
J.J. Kinahan, chief derivatives officer at TD Ameritrade, summarized the overall mood of the investment community, noting that volatility should decrease as the market rebalances itself in the future. However, the key question moving forward is the market’s ability to continue its record-breaking run in the face of potentially higher interest rates combined with a real unemployment rate that is tragically pedestrian.
As of now, the equities sector is in a holding pattern, with the S&P 500 closing down at 1,957 and the Dow Jones dropping 21 points to make it 16,846. The NASDAQ was slightly below parity at 4,379 points. The metals complex experienced a mixed performance, with gold stabilizing at 1,318 dollars, while silver cleared the $21 dollar barrier and palladium staged a small comeback to close at $836. On the digital currency side, bitcoin struggled earlier in the week, with a late push moving it to $580 dollars.
And that will do it for this edition. Thanks for watching and we’ll see you next week!