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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.

Market Perspective for July 16, 2023

Market Perspective for July 16, 2023

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Last week provided a number of clues as to the strength of the economy as well as what the Federal Reserve will do during their July meeting. On Wednesday morning, monthly CPI and Core CPI data was released. On a monthly basis, Core CPI fell from .4 percent to .2 percent, which beat analyst expectations of a .3 percent increase. The Core CPI data takes into account everything except for food and energy prices as they tend to be more volatile.

Normal CPI increased .2 percent over the previous month, which was higher than the .1 percent reading issued in June but lower than the .3 percent increase predicted by economists. The yearly CPI figure was 3 percent, which was lower than the 4 percent reading issued in June and also lower than the 3.1 percent predicted by analysts.

Unemployment claims data was also released on Thursday morning, and they showed that there were fewer claims this week compared to last. Over the last seven days, 237,000 people filed for unemployment benefits, which was down from 249,000 a week ago and lower than the estimated 251,000 claims.

On Friday, the University of Michigan released its consumer sentiment and inflation expectation reports. Consumer sentiment improved to 72.6 from 64.4 in June, which is the highest figure in almost two years. However, inflation expectations did increase to 3.4 percent from 3.3 percent compared to a month ago.

Currently, there are a mixture of opinions coming from the Fed as to what should happen in two weeks when the Federal Open Market Committee (FOMC) meets. Some believe that another rate hike is warranted regardless of what happens the rest of the month. Those who share that view have cited stubbornly high food and rent prices as well as the possibility that the decrease in inflation is an artifact in the data. In other words, inflation data may only look good because it is being compared to extremely high price increases from the previous year.

The S&P 500 finished up 2.27 percent this week to finish at 4,505. The market started at the low of the week on Monday and steadily climbed on Tuesday, Wednesday and Thursday. The market peaked on Friday morning at 4,524 before easing back to its final price.

The Nasdaq was up 3.42 percent this week to finish at 14,113. Like the S&P 500, the Nasdaq would bottom out on Monday morning at 13,592 before steadily climbing until hitting 14,216 on Friday morning.

Finally, the Dow 30 would finish the week up 2 percent at 34,509. As with the other major indices, the Dow would make a low on Monday before steadily climbing for the rest of the week. However, unlike the other two indices, the Dow would make a high of 34,545 on Wednesday before settling into a trading range on Thursday and Friday.

Next week sees the release of several important news items starting with the Empire State Manufacturing survey on Monday morning. Retail sales data is set to be released on Tuesday while the Philly Fed Manufacturing Index is set to be released on Thursday along with weekly unemployment claims data. Finally, existing home sales data is expected to be released on Thursday, which may give more clues as to the state of the economy.