Market Perspective for June 26, 2023

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.

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