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Market Perspective for June 12, 2023

Market Perspective for June 12, 2023

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While there wasn’t a lot of news this week, what was released had a significant impact on equity markets and may have a strong influence on what the Federal Reserve decides to do at its June and July meetings.

On Monday, the Institute for Supply Management (ISM) PMI came in at 50.3 percent, which was down from 51.9 percent last month and was below the 52.6 percent forecast for the month. Although any reading above 50 indicates growth in a given sector, it is the lowest number since January. This figure also comes just days after executives from Macy’s, Costco and other retailers have said that consumers are either buying less expensive items or are delaying purchases altogether.

On Thursday, another key data point came out that further revealed that the economy may be starting to slow down. Unemployment claims figures saw 261,000 people filed for benefits. This was significantly higher than the 233,000 claims filed last week and above the estimate of 236,000.

It’s also worth noting that several countries released gross domestic product (GDP) and unemployment numbers that showed potential weakness in their economies as well. For instance, Australia’s GDP dropped .2 percent when compared to the previous quarter, which was well below the .3 percent growth that analysts had expected. On Wednesday, Canadian authorities announced that there was a net loss of 17,300 jobs over the past month.

Interestingly, the central banks in Australia and Canada decided to raise interest rates in those countries by 25 basis points. Australia’s interest rate is now 4.1 percent while Canada’s central bank has now set its interest rate at 4.75 percent. Banking authorities in the European Union (EU) have suggested that further tightening may also be forthcoming in the next few months.

As central banks tend to coordinate interest rate hikes and cuts, it will be fascinating to see whether the Fed follows with a rate hike of its own despite a potential slowdown. Typically, the Fed does not continue hiking rates after taking a pause. Therefore, a pause would be more likely to indicate that the current cycle of increasing interest rates is over and that markets may finally be closer to the pivot that they’ve been anticipating for most of 2023.

The fact that there was little news this week meant that equity markets were largely rangebound. The S&P 500 traded between 4,260 and 4,280 between Monday and Thursday before finishing at 4,298 on Friday. Ultimately, the index was able to finish .25 percent higher than it started.

The Dow started the week at 33,750 before falling to 33,500 on Wednesday. However, it would reverse late Wednesday and finish the week at 33,876, which was a .42 percent increase from the beginning of Monday’s trading.

Finally, the NASDAQ also spent most of the week in a narrow range hitting a low of 13,097 on Wednesday and a high of 13,378 on Friday. The NASDAQ would ease off of that daily high to finish the week at 13,259, which was a .15 percent increase on the week.

Although last week was relatively slow, things are going to pick up in a major way starting on Tuesday. This is when monthly and yearly CPI data will be released as well as monthly Core CPI figures. On Wednesday, monthly PPI and Core PPI data will be released as well as the Fed’s June rate decision. Retail sales figures, the Empire State Manufacturing Index and unemployment claims figures will be released on Thursday.

Market Perspective for June 5, 2023

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The final week of May saw several significant news releases that will likely have an impact on market sentiment during the second half of the year. On Tuesday, the Conference Board Consumer Confidence Index was released and found that consumers were generally less optimistic about the economy in April than they were in March. The figure for April came in at 102.3, which was down from 103.7 a month earlier. However, it was still higher than analyst’s forecast of 99.1.

On Wednesday, the Bureau of Labor Statistics (BLS) released the May Job Openings and Labor Turnover Survey (JOLTS). It found that there were 10.1 million job openings in the United States, which was an increase from 9.75 million in April and was also higher than the forecast of 9.41 million openings.

On Thursday, three reports were released. The Automatic Data Processing, Inc. (ADP) nonfarm employment report was released, and it found that there was a net gain of 278,000 jobs over the past month. Prior to the release, it was believed that the economy only gained 173,000 jobs over the previous 30 days.

Unemployment claims data was released and showed that there were 232,000 claims made over the previous week, which was in line with expectations. Finally, the Institute for Supply Management (ISM) released its manufacturing index, which came in at 46.7 percent. This figure was also roughly in line with what was expected prior to the release.

On Friday, the average hourly earnings report was released, which indicated that earnings were up .3 percent over the past month. However, it was slightly lower than the expected .4 percent increase during that period. The latest unemployment rate was 3.7 percent, which was an increase from 3.4 percent over last month.

This increase was although the economy added 339,000 jobs during the past month. After the report was released, some economists speculated that there may be an error in the data as job gains are typically accompanied by a greater increase in average hourly earnings. Economists also noted that average hours worked per week also eased down, which would further indicate weakness in the economy.

The other piece of big news this week was the passage of a debt ceiling bill that would suspend the debt limit until 2025. A compromise bill passed through the House on Wednesday before being passed by the Senate and signed into law on Friday night. If an agreement had not been reached before Monday, there was a chance that the government would have defaulted on its debts.

At the close of trading on Friday, the S&P 500 was at 4,282, which was a gain of 2.92 percent for the week.  The Dow 30 would also finish the week in the black at 33,762, which was an increase of 2.84 percent over the previous week.

Finally, the NASDAQ also finished the week higher while also outperforming the other two major indexes. On Friday, the technology index closed at 13,240, which was an increase of 3.94 percent on the week. It hit its low on Wednesday when it dipped to 12,898 before finishing the week on a strong note.

This upcoming week is a relatively light one in the United States. The only major news reports are the ISM Services PMI release on Monday and unemployment claims data scheduled to be released on Thursday. However, central banks in Australia, Canada and throughout Europe are expected to release CPI or other important data that might influence what the Fed does on June 13.

Market Perspective for May 30, 2023

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The final full week of May was dominated by debt ceiling drama. Early last the week, Treasury Secretary Janet Yellen reiterated her warning that the government could run out of money as early as June 1. However, by Thursday, it was revealed that there would be sufficient funds to avoid a default until June 5. Still, there was optimism from both sides of the political aisle that a deal would be done before a default could occur.

On Friday, President Joe Biden said bluntly that there would be no default while conservative lawmakers also said that progress was being made to avoid that fate. It was estimated that the stock market could lose up to 45 percent of its value if a protracted default were to occur. The threat of a default alone caused short-term bond yields to hit 7 percent, and it was also suggested that even a relatively short technical default could cause interest rates on mortgages, credit cards and other loans to increase by 2 percent or more.

Analysts also believe that a default of any kind could lead to the loss of millions of jobs and push the economy into a recession. Regardless, there is still a consensus among economists that a recession is likely in the second half of the year thanks to the Fed’s rapid increase of funds rate to 5.25 percent.

News released this week suggests that the Fed may not be done raising interest rates in the short or long-term. Markets had priced in the prospect of a summer pause in rate hikes while the Fed got a better idea of the impact that existing actions had on the economy. However, on Thursday, it was revealed that the economy had grown 1.3 percent in the first quarter as opposed to an expected increase of just 1.1 percent.

Furthermore, there were only 229,000 unemployment claims compared to a forecast of 249,000. This suggests a labor market that is still tight instead of one that is showing the type of weakness that would ease inflationary pressures. On Friday, the Core PCE Price Index revealed a .4 percent increase during the month of April, which was higher than the .3 percent forecast.

Meanwhile, durable goods orders increased 1.1 percent while core durable goods orders dropped by .2 percent over the past month. Friday saw the release of the revised UofM consumer inflation expectations figure. Consumers now expect inflation to be at 4.2 percent within the next 12 months, which is lower than the 4.9 percent CPI figure released on May 10.

Investors this week were mostly cautious in the runup to the Memorial Day holiday. The S&P 500 started the week at 4,202 and finished the week at 4,505, which was a .35 percent gain during that period. The Dow 30 started the week at 33,415 and ended the week down .85 percent at 33,093. The NASDAQ finished the week up 2.55 percent at 12,975 and was buoyed by a strong Friday that saw the index gain 277 points.

Gold prices continued their May slump falling to a low of $1,936 per ounce on Thursday evening. The price of gold started the month at $2,075 per ounce.

There is going to be a significant amount of news released next week after investors get back from the long holiday weekend. On Tuesday, the Confidence Board (CB) Consumer Confidence report is scheduled to be released at 10 a.m. On Wednesday, the JOLTS report will be issued while unemployment and manufacturing data is scheduled to be released on Thursday.

On Friday, nonfarm employment change data will be released in addition to the unemployment rate. Average hourly earnings data for the previous month will also be released, which may shed some light on what the Fed might do next about inflation.