Weekly Market Report: June 2nd, 2023
Risk markets appreciated the resolution of the budget negotiations, encouraging economic reports, and further signs of disinflation traction last week. A strong rally on Friday left the S&P 500 up nearly 2% on the week with all sectors finishing in the black. Speculation of a less hawkish Fed allowed interest rates and the USD to drift lower while the yield curve flattened slightly by the end of the week. Oil got a healthy bid toward the end of the week but still finished down along with the overall commodity complex.
- A table this week from Bespoke reminds us of the old saying ‘be greedy when others are fearful and fearful when others are greedy’ illustrating returns following three recent reasons to be fearful (debt ceiling, SVB bank failure, Fed rate hiking cycle)
- Thankfully, the debt ceiling was suspended for a sixth time last week in a last minute budget negotiation compromise. Not thankfully, we have $30t in outstanding debt and zero political will on either side to address any actual material budget issues.
- Large caps record outperformance over small caps and U.S. outperformance over non-U.S. can be, at least partially, explained through an examination of sector weighting differences with growth stocks (NASDAQ) leading the way and more prevalent in U.S. markets.
- Economic reports last week took some pressure off the FOMC with respect to a June rate hike with unemployment edging higher and wage growth slightly below consensus. The June Fed Funds contract is now pricing a 76% “hold-steady” rate decision and 24% on a 25 bps hike.
- The combination of a slowing economy and substantially higher interest rates (debt service) has led to a notable increase in leveraged loan defaults.
- A BCA Commodity and Energy Strategy research note predicted China’s CCP will be announcing a new round of credit led policy stimulus shortly to address fledging economic growth.
Economic Release Highlights
- The May Employment Report registered 339,000 jobs, well over consensus 190,000, but the unemployment rate rose to 3.7%. Participation Rate stayed at 62.6% while average hourly earnings were in line with consensus for both MoM (+0.3%) and YoY (4.3%).
The April JOLT Survey showed job openings increasing 3.67% to 10.10mm but down 14.05% from one year ago.
Eurozone headline and core inflation eased to 6.11% and 5.3% respectively, both cooling off from prior month readings.
The March Case-Shiller Home Price Index rose 0.42% from the prior month and +0.63% YoY.