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Market Perspective for July 5, 2023

Market Perspective for July 5, 2023

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The final full week of June provided investors with a slew of information to help them discern where the market may be heading over the coming weeks and months. On Tuesday, it was revealed that there was a .6 percent increase in monthly core durable goods orders compared to an estimate of flat growth since May’s report was released. Furthermore, core durable goods orders over that same period were up 1.7 percent, which was significantly higher than the .8 percent decline forecast by market experts.

The Conference Board also issued its consumer confidence index on Tuesday morning, and the final figure was 109.7, which was an increase from 102.5 in May. Finally, investors found out on Tuesday that new home sales had increased to 763,000 compared to 680,000 last month. This may suggest that home prices will remain steady or continue to climb during the summer, which could be both good and bad for the economy. On the plus side, additional home sales are likely a sign of economic strength, but that strength may force the Fed to increase interest rates again.

On Wednesday, Fed Chairman Jerome Powell indicated during a panel event that multiple hikes may be on the table this year. The Federal Reserve is scheduled to meet on July 26, and even if a hike doesn’t occur, Powell said that rates haven’t been restrictive for long enough to think about rate cuts.

Thursday morning saw the release of gross domestic product (GDP) data, which was better than expected. During the second quarter, it was believed that the economy grew by 1.4 percent, but the Thursday report showed that growth was actually 2 percent during that period. The GDP price index report showed an annualized increase of 4.1 percent during the second quarter. Ultimately, this means that the cost of goods and services that are included when calculating GDP figures increased.

Unemployment data for the past week was also revealed on Thursday, and over the past seven days, 239,000 filed for benefits, which was lower than the 265,000 filed last week. It was also lower than the estimate of 264,000 claims.

Two more news reports were released on Friday that did little to clear a muddled economic picture. The PCE core price index found that prices increased .3 percent over the past month, which was unchanged from the month prior and slightly lower than analyst expectations. Revised University of Michigan consumer sentiment found that consumers were slightly more hopeful about the future as the figure for June was 64.4 instead of the original figure of 63.9. However, revised consumer inflation expectations found that Americans expected inflation to be at 3.3 percent within a year as opposed to the 3.1 percent figure that was released earlier in June.

Equity markets largely trended higher throughout the week as the Dow 30 finished up 1.9 percent to finish at 34,407. The Dow started the week at 33,791 before hitting its weekly low of 33,668 on Monday morning. From there, it was a steady climb to the high as positive economic news had investors clamoring to put their money into companies represented on the index.

The Nasdaq was up a little over 2 percent for the week after ending Friday’s session at 13,787. As with the Dow, the Nasdaq hit its weekly low on Monday before generally grinding higher the rest of the week.

Finally, the S&P 500 was up 2.22 percent to finish the week at 4,450. As with the other major American indices, it would find support for the week on Monday afternoon at 4,329.

This upcoming week is expected to be backloaded due to the Fourth of July holiday. On Wednesday, the Federal Open Market Committee (FOMC) minutes will be released while job openings and wage data will be released on Thursday and Friday.

Market Perspective for June 26, 2023

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Last week was relatively slow, with only four trading days thanks to the Juneteenth holiday. Furthermore, there were only a couple of major news announcements after the market reopened on Tuesday. The first major news event occurred on Thursday with the reveal of unemployment claims numbers from the last seven days.

It showed that there were 264,000 claims made over the period compared to an estimated 261,000. This was the second consecutive week in which 264,000 unemployment claims were made.

On Friday, S&P Global released its Purchasing Managers Index (PMI) numbers for both the manufacturing and service sectors. The manufacturing PMI number was 46.3 percent, which was down from 48.4 percent last month and was below the 48.6 percent estimate. The services PMI was 54.1 percent compared to 54.9 percent last month and was slightly higher than the 53.9 percent expected by analysts. These numbers suggest that there is a slowdown occurring in the manufacturing sector while the service economy still has room to grow.

On Wednesday and Thursday, Federal Reserve Chairman Jerome Powell offered prepared remarks to members of the Senate. The main takeaways from his testimony were that the service sector was running too hot and was likely contributing to inflation, which is still too high for his liking.

Therefore, it is expected that there will be additional interest rate hikes in the coming months. According to Powell, there will not be a pivot toward lower interest rates soon. He also said that there was a chance that the economy would achieve a soft landing. In other words, prices could be reined in through rate hikes without triggering a recession.

Some have suggested that the Fed may be forced to consider further hikes because of actions taken by other banks around the world. The Bank of England (BOE) raised rates to 5 percent after recent CPI data in that country found that inflation had increased to 8.7 percent. The Swiss central bank also increased its interest rate to 1.75 percent last week. It’s expected that the European Union (EU) will continue to raise rates in response to recent data that inflation is still a key issue there.

The only outlier in the quest to contain inflation is Japan, which has a base rate of -.10 percent. This has caused the yen to depreciate significantly against the dollar as well as other currencies. At the end of trading on Friday, a single dollar could be traded for 144 yen. Although the Bank of Japan (BOJ) has indicated that it may intervene to stop the currency from sliding much further, it is also against raising rates. This is because it is a popular tool for those who want to engage in carry trades.

The S&P 500 was down 1.9 percent last week to finish at 4,348 on Friday afternoon. It reached its highest point of the week on Tuesday afternoon when it hit 4,397 and would slowly lose ground on Wednesday, Thursday and Friday.

Last week was also unkind to those who were invested in companies listed on the Dow 30. The index finished down 2.19 percent to finish at 33,727. As with the S&P 500, the Dow hit its high of the week on Tuesday before slowly falling on Wednesday, Thursday and Friday.

Finally, the NASDAQ would also have a losing week as it finished 2.08 percent lower. The market would hit its high of the week on Tuesday at 13,679 and end the day on Friday at 13,492.

This upcoming week sees the release of consumer confidence, GDP and consumer price figures. On Wednesday, Jerome Powell will be speaking about the state of the economy and may offer clues about his next moves. On Friday, revised consumer inflation expectation data will also be released, which could have an impact on what the Fed does during its July meeting.

Market Perspective for June 19, 2023

Market Perspective for June 19, 2023

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Investors were looking to get a better idea as to what the Federal Reserve might do over the next few months. On Wednesday, the Fed decided to keep interest rates at their current level of 5.25 percent. Federal Reserve Chairman Jerome Powell said that doing so would provide additional time to assess the impact that previous hikes had on the economy.

The Federal Open Market Committee (FOMC) will meet again on July 26, and according to projections released at Wednesday’s meeting, there is a strong possibility of an additional one or two rate hikes before a pivot begins. One of the key reasons why additional hikes might be necessary is because monthly core CPI was up .4 percent. Core CPI measures inflation without accounting for food or energy costs.

Until that figure comes down, it may be difficult for overall inflation to reach the 2 percent target set by most of the central banks across the world. However, the inflation news was not all bad as overall CPI for May was 4 percent, which was the lowest since 2021 and lower than the 4.1 percent analysts expected.

On Friday, the University of Michigan released its preliminary inflation expectations for the next 12 months. It found that those who took its survey believe that inflation will fall to 3.3 percent over the next year. This is important as consumers may be less likely to pay higher prices if they believe that they are going up for no reason.

Of course, data indicates that consumers aren’t hesitating to spend even as prices continue to go up. On Thursday, retail sales and core retail sales data were released, and both reports showed that there was an increase in spending. Retail sales were up .3 percent on a monthly basis while core retail sales were up .1 percent on a monthly basis. Analysts believed that retail sales would fall by .2 percent.

The Empire State Manufacturing Index was also released on Thursday, and the final figure was 6.6 percent, which indicates that the manufacturing sector in New York is expanding. It was significantly higher than the -15 percent estimate and was also much higher than the -31.8 percent figure seen last month.

Finally, unemployment claim data released on Thursday morning found 262,000 claims had been filed in the previous week. This was the same as last week and was higher than the 246,000 claims that analysts expected.

Although the news this week indicates that the economy is in a state of turmoil, investors were mostly bullish. The S&P 500 was up 2.35 percent on the week after finishing at 4,409 on Friday. The market opened at 4,308 on Monday and steadily climbed over the next four trading days.

The NASDAQ was up 2.77 percent this week closing at 13,689. It started the week at 13,321 and hit its weekly high on Thursday at 13,808 before easing back about 1 percent on Friday. While the Dow 30 finished up about 1 percent this week, it did experience some choppy trading. On Monday, it opened at 33,951 before easing back to its weekly low of 33,834 on Wednesday. By Friday morning, it had hit its weekly high of 34,529 before giving up ground to finish the week at 34,299.

On Wednesday and Thursday, Jerome Powell will testify before the Senate. Manufacturing and services PMI data will be released on Friday.