Weekly Market Report: July 7th, 2023
Last week was a short holiday week but still managed to produce a full suite of economic data for markets to digest, highlighted by the June jobs report on Friday. U.S. and developed international markets were down approximately 1% while emerging markets closed up 0.40%, thanks to a rally in India and China. Interest rates moved meaningfully higher last week with 5, 10, and 20 year maturities all rising over 20bps taking the 10yr yield back above 4% for the first time since early March.
Market Anecdotes
- After notching a fresh 52 week high and breaking back into bull market territory (+20% from the October 2022 low), the first week of the third quarter reminded investors that markets giveth and markets taketh.
- J.P. Morgan’s quarterly chart deck did a nice job illustrating historical equity market cycles, valuations, yields, and the earnings contributions of the top-heavy nature of the S&P 500. An illustration of the past decade of interest rates also makes clear the lofty levels we have today.
- FOMC meeting minutes were released last week echoing the hawkish sentiment carried around the Fed speaking circuit since the meeting. The minutes and economic reports last week served to move futures pricing expectations for a 25bps hike at the July 26th meeting up to 92%.
- The Fed’s new model of financial conditions (tight) show the growth headwinds caused by high mortgage, Fed Funds, and corporate bond rates being stabilized somewhat by strong equity markets and a stabilizing housing market.
- Rising wages and a healthy consumer balance sheet have translated to strong consumption in the U.S. and abroad with sticky inflation as the unfortunate consequence and a softening labor market perhaps the only true remedy allowing the Fed to stick the ‘soft landing.’
Economic Release Highlights
- The Employment Report for June showed 209,000 jobs, just under the consensus forecast of 213,000 and the unemployment rate remained at 3.6%. Average hourly earnings were slightly above forecast for both MoM (0.4%a vs 0.3%e) and YoY (4.4%a vs 4.2%e).
- May’s JOLT Survey showed 9.824mm job openings, just under the consensus forecast of 9.9mm but down notably versus prior month reading of 10.320mm.
- The June ISM Manufacturing Index came in below consensus (46.0 vs 47.3) and underneath the low end estimate of 46.6. ISM Services beat handily (53.9 vs 50.8).
- The JPM Global Manufacturing PMI (C, M, S) came in at 52.7, 46.3, 54.0.
- China’s June CFLP PMI (C, M, S) registered 52.3, 49.0, 53.2 – in line with consensus and no material change over the prior month.
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