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Market Perspective for August 6, 2023

Market Perspective for August 6, 2023

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On Monday, the Chicago Purchasing Managers Index (PMI) was released and came in at 42.8 percent, which indicates that economic conditions in one of the largest cities in America are contracting. The index was expected to come in at 43.3 percent, which would still have indicated that economic conditions were softening in that part of the country.

On Tuesday, the national manufacturing PMI numbers were released, and that survey came back at 46.4 percent, which was lower than the expected 46.9 percent. In addition, manufacturing prices PMI data was made available and came in at 42.6 percent compared to an expected 43.8 percent. The Job Openings and Labor Turnover Survey (JOLTS) report was also released that day, and it revealed that there were 9.68 million available positions in the United States.

On Wednesday, the ADP nonfarm employment change report was released, which is the precursor to the Bureau of Labor Statistics (BLS) report that was issued on Friday. The report from ADP found that the economy added 324,000 new jobs in the last month, which was higher than the expected 191,000 new jobs. Initially, it was believed that such a robust figure could open the door to additional rate hikes in the coming months.

However, that speculation would be dashed as new data came in on Thursday and Friday. Thursday saw the reveal of the services PMI report, which came in at 52.7 percent compared to 53.1 percent predicted by analysts prior to the release. Furthermore, unemployment claim data was released on Thursday morning, and the report revealed that 227,000 people had applied for benefits in the past week. This was compared to 221,000 a week ago and was also higher than the 226,000 claims analysts had expected to be filed in the past seven days.

Friday saw the release of the BLS nonfarm payroll report as well as monthly earnings and unemployment figures. In July, the economy added 187,000 jobs, which was lower than the 205,000 predicted by experts prior to Friday morning. It was also announced that June data was revised downward to 187,000 new jobs added from 209,000 when the report was first issued on July 7.

The unemployment rate dropped from 3.6 percent to 3.5 percent despite expectations that the number would remain the same. Average monthly earnings increased by .4 percent as opposed to the expected .3 percent. This means that there is still pressure on employers to continue hiking wages to compete in a historically tight labor market.

However, a slowdown in hiring has led some to say that the Fed should elect to keep rates where they are in September as opposed to an additional hike. The Fed Funds Rate is currently in a range between 5.25 percent and 5.5 percent. In addition, data indicates that most jobs are classified as part-time, which means that workers will make less overall even if they are paid slightly more per hour worked.

The S&P 500 was down 2.48 percent this week to finish at 4,478. On Monday, the market hit a high of 4,588 and remained steady on Tuesday. However, Wednesday saw the S&P 500 tumble to a weekly low of 4,486 that held until the end of the trading day on Friday.

As with the S&P 500, the Nasdaq was a net loser this week as it lost 3.11 percent over the last five trading days. It hit its high on Monday afternoon at 14,348 before hitting its low of the week on Thursday at 13,887. The market would rebound slightly on Friday to finish at 13,909.

Compared to the Nasdaq and S&P, the Dow had relatively smaller losses, finishing down a mere 1.28 percent at 35,065. The Dow would hit its high of the week on Tuesday morning at 35,657 and would continue to grind lower until the end of the trading day on Friday.

Over the coming days, investors will be awaiting the release of monthly and yearly Consumer Price Index (CPI) and monthly Producer Price Index (PPI) figures. It is believed that CPI on an annualized basis will increase to 3.3 percent from 3 percent in July while monthly CPI will increase by .2 percent. Prices are expected to have increased .2 percent since last month.

Market Perspective for July 31, 2023

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The final full week of July was one of the busiest in recent memory. On Monday morning, Manufacturing Prime Managers Index (PMI) and Services PMI data was released and found that manufacturing had rebounded over the past month while the service sector experienced a slight regression. The Manufacturing PMI figure was 49 percent in July compared to 46.3 percent in June while the Services PMI was 52.4 percent in July compared to 54.4 percent in June.

On Tuesday, the Conference Board (CB) Consumer Confidence Index was released and came in at 117 for July compared to 110.1 for June. Analysts had expected a reading of 112.1 for July, which would still represent a generally confident outlook about where the economy is headed. The Richmond Manufacturing Index was also released on Tuesday, and it came in at -9, which was lower than the -7 predicted by analysts. This suggests that manufacturing in the state of Virginia is contracting, which is at odds with overall PMI trends.

On Wednesday, the Federal Open Market Committee (FOMC) held its July meeting. The main event of that meeting was a decision to raise the federal funds rate by 25 basis points to a range of 5.25 percent to 5.5 percent. During the FOMC press conference, Fed Chair Jerome Powell suggested that further rate hikes were still on the table. However, it is believed that CPI data will continue to show a decrease in overall inflation, which may negate the need for further action.

Therefore, some believe that the current rate hike cycle has effectively come to an end even if Powell stated that future actions would be data dependent. However, he did mention that interest rates would likely remain elevated for some time and that a rate cut in 2023 was not likely. Finally, Powell said that inflation was unlikely to fall and remain steady at 2 percent until sometime in 2025.

On Thursday, several reports were released including advance gross domestic product (GDP) figures from the previous quarter. It found that the economy grew by 2.4 percent over the previous three months, which beat analyst estimates by .6 percent. Furthermore, unemployment claims dropped to 221,000 from 228,000 a week ago. This suggests that the United States may be able to avoid a recession despite raising interest rates into what Jerome Powell classified as restrictive territory.

Core durable goods orders were up by .6 percent in the past month while all durable goods orders were up 4.7 percent during that same time. Analysts expected core durable goods orders to increase by .1 percent while they predicted only a 1.3 percent increase in all durable goods orders. Durable goods include cars, computers or other items expected to have a useful life of more than 36 months.

On Friday, the quarterly Employment Cost Index (ECI) was released, which came in at 1 percent. This report measures the impact of labor and other costs that businesses eventually are forced to pass on to consumers. Finally, revised University of Michigan Consumer Sentiment and Inflation Expectations were released. Consumer sentiment decreased to 71.6 percent while inflation is expected to be at 3.4 percent a year from now.

Despite all of the news, the S&P 500 remained fairly flat for the week, closing down .31 percent at 4,582. The market hit a high of 4,605 on Thursday before falling just below the previous weekly low of 4,552 established on Monday morning.

The Dow 30 followed a similar trajectory this week as it reached a high of 35,623 on Thursday before giving retreating to finish the week at 35,459. This represented a loss of .09 percent over the previous five trading days.

Finally, the Nasdaq was a carbon copy of the other two major indices as it opened at its weekly low before climbing to a high of 14,344 on Thursday. It would close the week at 14,316, which was a loss of .88 percent compared to its closing price last Friday.

This Friday, nonfarm employment payroll figures will be released by the Bureau of Labor Statistics (BLS). Average hourly wage and unemployment figures will also be released on the final day of the upcoming trading week.

Market Perspective for July 23, 2023

Market Perspective for July 23, 2023

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The third full week of July saw several pieces of news that provided critical clues about the direction that markets may be heading. On Monday, the Empire State Manufacturing Index was released, and it dropped to 1.1 from 6.6 a month ago. However, this figure was higher than the -3.5 forecasted by analysts prior to Monday’s release. What this means is that there was a slowdown in manufacturing compared to last month but that the sector is still growing.

On Tuesday, retail sales and core retail sales figures from June were released. Core retail sales were up .2 percent while all retail sales were also up .2 percent over the previous month. Core sales were expected to go up by .4 percent while all sales were expected to increase by .5 percent during the last 30 days.

Industrial production figures were also submitted on Tuesday, and they were down .5 percent last month, which was the same as the previous report. It was expected that industrial production would remain flat.

On Wednesday, it was revealed that there were 1.43 million new housing starts in the United States, which was lower than the 1.56 million starts last month. Building permits were also down in the previous month with only 1.44 million issued compared to 1.5 million in May.

There was further evidence of softness in the housing market as it was reported that existing home sales dropped to 4.17 million from 4.3 million last month. This is important because home prices have largely stayed resilient in recent years because of a lack of available properties on the market.

Thursday also saw the release of the Philly Fed Manufacturing Index, which came in at -13.5. This was lower than the -13.7 last month but was higher than the -10.7 that was forecast by analysts in recent days. Unemployment claims data for the past week was also made public on Thursday. There 228,000 claims during that period, lower than the 237,000 claims from two weeks ago.

The Dow 30 was up 2.16 percent this week to finish at 35,227. As with last week, the Dow hit its low on Monday at 34,493 before steadily climbing during the rest of the week to finish at its high on Friday.

The Nasdaq was down .8 percent last week to finish at 14,032. On Wednesday, the market hit its high of 14,425 before reversing and easing its way lower on Thursday and Friday. The weekly high was slightly below the high of the previous 52 weeks, which is 14,446.

As with the Nasdaq, the S&P 500 hit its weekly and monthly high on Wednesday before easing down on Thursday and Friday. However, unlike the Nasdaq, the S&P 500 would finish the week up .6 percent to close at 4,536.

The upcoming week is going to be full of important news. On Monday morning, the Flash Services PMI and Flash Manufacturing PMI reports will be issued. The CB Consumer Confidence report will be issued on Tuesday while the Federal Open Market Committee (FOMC) will meet on Wednesday.

While it’s expected that the Fed will raise interest rates by 25 basis points, there is some discussion that another skip may be warranted. It’s also possible that the Fed will decide that a July rate hike will be the final one of the current tightening cycle.

On Thursday, advance quarterly GDP figures will be released along with unemployment claim figures for the previous week. Finally, on Friday, the Core PCE Price Index will be released as well as the quarterly Employment Cost Index and revised University of Michigan Consumer Sentiment and Inflation Expectation reports.