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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.

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.