Market Perspective for July 31, 2023

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.

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