The Week Ahead on Wall Street
Today, there is no economic data scheduled to be released.
Tomorrow, the Consumer Price Index for June is published. This data point measures the changes in prices consumers pay for products and services on a monthly basis. The CPI increased 5% year-over-year in May, marking the largest increase in almost 13 years. The markets will be paying close attention to the reading for June to see if inflation is increasing or easing. Also Monday, the federal budget and the NFIB Small Business Index for June are released.
On Wednesday, the Producer Price Index for June is due. This metric measures the average changes in prices from a producer’s or manufacturer’s point of view. In May the PPI increased 0.8% month-over-month and 6.6% from a year ago, which is the biggest annual increase since the Bureau of Labor Statistics began tracking the data in 2010.
On Thursday, initial unemployment claims for the week earlier are released. The results of this metric have fluctuated in recent weeks. Last week 373,000 people filed for unemployment for the first time, which was higher than the 350,000 economists forecast.
On Friday, retail sales for June are released. This is an important data point to measure the health of the economy. With vaccinations widely available and the economy reopening, consumers have been on a spending tear. Whether it is sustainable depends on how retail sales track in the coming months. In May they fell 1.3% as consumers shifted spending to services. Investors are waiting to see if that trend continues or consumers start shopping again.
On Tuesday, JPMorgan Chase (JPM) reports quarterly earnings. America’s largest bank by assets has been on a spending spree. JPMorgan Chase has acquired more than 30 companies since the start of this year. The firm has been focused on smaller buys around the globe from a UK online money manager to a digital bank in Brazil. The acquisitions are designed to expand into new and existing businesses. It will be interesting to hear more about this strategy and what it means for the bank’s bottom line.
On Wednesday, be on the lookout for earnings from Delta Air Lines (DAL). Like its rivals, the airline operator is enjoying increased demand as Americans travel again. At the same time, the industry is dealing with labor shortages which have caused American Airlines (AAL) to cut back on some of its scheduled summer flights. Investors will be paying close attention to what Delta has to say about demand—especially from business travelers. Analysts expect that business air travel will not return to normal levels for several years.
On Thursday, Taiwan Semiconductor Manufacturing Company (TSM) reports quarterly earnings. The chip maker is currently constructing a $12 billion plant in the US. At the same time, it is investing $2.8 billion in China to mass-produce chips for vehicles by 2023. The latter is raising concerns for the US government which is worried that TSMC could help China reach its goal of chip independence. At the same time, the global semiconductor industry is still dealing with component shortgages. It will be interesting to hear what TSMC has to say on all three fronts.
Also Thursday, UnitedHealth Group (UNH) reports quarterly earnings. Last month the largest health insurance company in the US said it would deny insurance holders emergency medical care coverage in cases when an event was not an actual emergency that needed immediate care. Doctors, nurses, and hospital management said the change sets a dangerous precedent. It will be interesting to hear what UnitedHealth has to say about that policy when it reports earnings.
On Friday, be on the lookout for Charles Schwab (SCHW) to report quarterly earnings. The online brokerage company just revealed it was fined $200 million by the Securities and Exchange Commission due to practices within its robo advisory service. Meanwhile Goldman Sachs (GS) downgraded its investment rating on the stock, saying the boom in trading revenue is coming to an end. Investors will be paying close attention to what Charles Schwab has to say about trading activity when it reports earnings.
The Week Ahead at SoFi
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10-Year Treasury Yield Declines Amid Economic Worries
Borrowing Gets Cheaper
The yield on the 10-year US Treasury continued to decline this week, reaching a level not seen since February. The slide is happening even as inflation rises and the Federal Reserve reins in its pandemic stimulus activities.
Investors and economists had expected the yield on the 10-year Treasury to increase this year as the economy rebounded after more than 12 months of pandemic restrictions. For borrowers, particularly those looking to purchase a home, this will likely translate to a decline in rates. Typically the 10-year Treasury is 150 to 200 basis points more than the 30-year mortgage rate.
Fed to Ease Stimulus Measures
Last week the yield on the 10-year Treasury slipped 5 basis points to 1.318% while the yield on the 30-year Treasury fell 6 basis points to 1.93%. The decline came as the Fed published the minutes from its June meeting in which it talked about reducing its bond-buying activities but also expressed the need to make changes gradually.
Ending the Fed’s purchase of $120 billion in Treasury and mortgages each month could signal the economy is on the mend. It may also mean the Fed is gearing up to raise interest rates. Some investors think the removal of Fed stimulus will push short-term rates higher while worries about a slowdown in the economy will drive long-term rates lower.
Mortgage Rates Fall in Lockstep
A byproduct of the declining Treasury yield is a dip in mortgage rates. For the week ending July 8, rates on home loans fell to their lowest level since February. The 30-year fixed rate mortgage averaged 2.9%. Just two weeks ago the rate was above 3%. With optimism about economic recovery ebbing, mortgage rates are expected to stay near historic lows in the weeks to come. That could drive more homebuyers off the sidelines.
Investors may be bracing for a slowdown in the economy, but with Treasury yields declining and mortgage rates following, it just got even cheaper to borrow money. It will be interesting to see what impact this has on the real estate market over the next few months.
Waiting around for a good mortgage rate can make you feel a little like a ballplayer who’s been warming the bench—except there’s no coach to tell you when to get in there and play. This drop could signal that it’s time to step on the court and start the mortgage review process. If you’ve been on the sidelines waiting to hop in, now might be time to consider refinancing your mortgage. Check your rate in two minutes to get started.
Strategies for Rebuilding Finances
Financial Rebuilding After the Pandemic
The economy is improving with more people returning to the workforce and earning better wages. But that does not mean the financial malaise of the COVID-19 pandemic is over. After all, 373,000 people filed for initial unemployment claims last week and 3.34 million people are still receiving unemployment benefits.
Millions of Americans are struggling to get back on their feet and to rebuild their finances after months of shutdowns and unemployment. For the latter group, they have to take steps to get back on their best financial footing. From rebuilding emergency savings to conducting a budget check, here are some steps to consider.
Rebuild Emergency Savings
Rebuilding an emergency fund should be a top priority. If calamity strikes, individuals have to ensure they have enough money in the bank to cover expenses. The general rule of thumb is to have three to six months of expenses in an emergency fund set aside for a rain day.
In addition to shoring up emergency savings, paying down high-interest-rate debt should also be on the top of the list of ways to improve finances. That is particularly true of individuals who relied on credit cards to survive the pandemic.
As the economy recovers from the pandemic, inflation has been rising, which means prices for everything from milk to lumber are higher. As a result individuals want to revisit their budgets to ensure their spending matches the current cost of living. That means factoring inflation into the budget. It is also important for people to resist the temptation to overspend amid excitement about the pandemic coming to an end.
Vaccinations are widely available and the job market is improving as millions of people return to work. Rebuilding finances requires a plan that includes shoring up savings, paying down debt, and factoring the costs associated with daily living.