Tucker Financial Weekly Market Review: June 26th, 2023

Overbought conditions, dampened sentiment, and continued hawkishness from global central bank officials combined to snap a five-week winning streak for the S&P 500 last week. Sticky inflation pressures and softening economic data added to a risk-off tone last week where extended global equity markets took a pause. The week saw the S&P 500 close down 1.4% while developed (-3.5%) and emerging (-4.5%) markets fell further. Interest rates didn’t move much either way but commodity markets softened on the dampening global growth sentiment where WTI closed the week back below $70. The risk-off tone translated to a bid for the USD which closed 0.65% stronger on the week.

• A pricey and top heavy S&P 500 which has rallied 23% since October has investors on edge but BCA issued a reminder that valuations aren’t a very reliable short to intermediate term market buy/sell indicator.

• Markets digested a slew of hawkish Fed speakers last week with a dot plot backdrop showing zero of 18 members projecting any rate cuts in 2023 and a median Fed Funds rate at the end of 2024 only slightly lower than year-end 2023 projections.

• Markets have been increasingly pricing in the more hawkish Fed narratives. As recently as May 3rd, year- end Fed Funds projections were 4%, they are now over 5%.

• The BoE hiked rates 50bps last week, more than markets expected (25bps), joining Canada and Australian central banks who have surprised markets on the hawkish side of the ledger.

• A contrarian note from Bianco Research projects the July CPI release will be the 2023 low, forcing the Fed very much in the higher for longer camp.

• If leading economic indicators and inverted yield curve were the only metrics you monitored, the supporting case for recession would be overwhelming with May’s LEI registering a 14th straight monthly decline and the duration and depth of yield curve inversion both in rare form.

• A research note from Pictet illustrates very clearly how the TINA regime is a thing of the past, at least for now, with earnings yields, corporate bond yields, and T-bill yields fully converged – something we haven’t seen in decades.

• • June’s flash U.S. PMI readings (C, M, S) of 53, 46.3, 54.1 reflected additional deterioration in the manufacturing sector but surprised on the upside across the service sectors.

  • June’s flash non-U.S. PMIS looked like U.S. readings with manufacturing readings of Eurozone (43.6), UK (46.2), Japan (49.8), and Australia (48.6) alongside service sector readings of Eurozone (52.4), UK 53.7), Japan (54.2), and Australia (50.7).

  • The Housing Market Index in June continued to rebound to 55, surpassing both spot forecasts of 50 and consensus range of 48-52.

  • Housing Starts (1.631M) and Permits (1.491M) surpassed consensus estimates and registered above (starts) and at the high end (permits) of their respective forecasted ranges.

  • Existing Home Sales of 4.30M came in above the 4.25M consensus estimate and at the high end of the range. This release was 0.2% above prior month and -20.4% YOY.