The markets were rocked by higher long-term rates after Chairman Powell spoke on Tuesday and expressed that rates were a “long way” from neutral. This, and other positive U.S. economic data, moved the 10-Treasury yield up to 3.23%. The jobs report indicated that wages grew at a 2.8% annual rate and anecdotal evidence of higher wages appeared as Amazon announced it would increase its minimum wage rate to $15 per hour. Bloomberg dropped a bomb this week with an article claiming the Chinese military successfully infiltrated a number of US companies via the installation of miniscule chips in various computer motherboards. If confirmed, the repercussions on companies relying on global supply chains could be disastrous as companies will have to reconstruct security measures and reconsider their reliance on outsourced production.
The rise in rates reverberated negatively across the major markets. Domestically, small cap stocks were off nearly four percent – paring back the strong performance this year – as investors took risk off the table. International funds moved downward again as a strong dollar is a headwind to these returns. The strength in oil and the dollar were also a cause for concern in India this week which dampened emerging market returns. The Indian government directed its state run oil refiners to lower and subsidize prices to reduce the broad economic pain of being a country that is large importer of oil. As expected, bond prices dropped with the higher move in rates, with only floating rate debt being spared.
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