Weekly Market Report: July 21st, 2023
Market drivers last week included second quarter earnings reports and a continuation of U.S. disinflation and economic soft landing themes. The S&P 500 and NASDAQ both marked 15-month highs, closing up marginally for the week. Bonds traded down slightly with interest rates rising in the belly of the curve (2y, 3y, 5y) while the 10yr yield remained largely unchanged at 3.84%. The USD (+1.16%) and commodities (+2.17%) both edged higher on the week with the energy complex leading the way.
Market Anecdotes
- A look at equity market technicals shows we may be somewhat extended (overbought) in the short term, the longer-term trend remains constructive.
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Liz Ann Sonders posted a useful illustration highlighting the notable improvement in breadth (participation/leadership) we’ve seen since early June and Bianco Research followed that note with a similar observation through a market cap lens.
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Q2 earnings season, with 18% reporting, has a blended earnings decline of 9.0% and revenue of -0.3%. The street is still projecting recovering earnings growth in the second half with 3Q estimates of +0.1% and 4Q of +7.5%.
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We’ve seen some material USD weakness following the U.S. CPI report triggering debate as to what exactly this weakening USD may be signaling.
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Expectations of a U.S. recession have receded slightly with the soft core CPI report feeding a soft landing narrative backed by sustained consumption, a resilient labor market, and robust service sector activity. The counter argument, however, is supported by recessionary manufacturing conditions, restrictive monetary policy, weak LEIs, and a deeply inverted yield curve.
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An FT article highlighted positive trends in private debt with demand supported by the high costs of public issuance, fewer reporting obligations, loss of business/operational control, and less rigor surrounding related party transactions.
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Bloomberg noted home equity dry powder has increased 56% over the past three years; Black Knight estimates the magnitude at $28.7t ($9.3t accessible at 20%).
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A lackluster reopening trend and weak GDP report has China signaling potential stimulative measures including a currency peg adjustment, relaxed mortgage requirements, and potential rate cuts.
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A Bloomberg article last week highlighted a significant increase in bankruptcies reaching the highest levels since 2010 but the article sparked some intense debate on the BCA Research weekly research call.
Economic Release Highlights
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June headline Retail Sales came in below expectations (0.2% vs 0.5%) but ex-vehicles (0.2% vs 0.3%) and ex- vehicles & gas (0.3% vs 0.3%) readings were both more in line with consensus.
- The four week moving average of Initial Jobless Claims fell from a near-term high on June 24th of 256,750 to last week’s level of 237,500.
- Industrial Production in June was soft, well under forecasts (-0.5% vs 0.0%) as were the Manufacturing Output (-0.3% vs 0.0%) and Capacity Utilization (78.9% vs 79.5%) readings.
- July’s Housing Market Index came in right at the consensus forecast of 56 after rising 5 points to 55 in June.
- June Housing Starts (1.434M vs 1.48M) and Permits (1.440M vs 1.483M) both came in below forecasted
- levels but within the larger consensus range.
- June Existing Home Sales cooled slightly from May’s reading to 4.16M.
