Weekly Market Report: July 28th, 2023

Last week was jam packed with a deluge of earnings reports, several global central bank meetings, and a very full economic calendar. Disinflation traction, strong U.S. growth, and decent earnings information last week were all constructive on the margin enabling the S&P 500 to post a third consecutive weekly gain (+1%) with a nice boost from Facebook and Google. Interest rates edged higher across the curve with the 10yr UST yield briefly breaking the 4% level before settling at 3.96%. Commodity markets were up on the constructive growth backdrop with WTI posting a fifth consecutive weekly gain to take spot oil back up over $80 for the first time since April.

Market Anecdotes

  • Stretched valuations, overbought technicals, decent earnings, resilient growth, strong labor markets, and a resulting mixed outlook for inflation/monetary policy suggests a differing short-term versus cyclical outlook for risk assets.
  • The FOMC meeting delivered the expected 25bps hike to Fed Funds, increasing it to 5.25%. They stopped short of overtly signaling a pause, opting for a ‘meeting by meeting’ approach. Nothing changed in the post- meeting statement while Powell’s post-meeting presser acknowledged favorable inflation trends and resilient (too?) labor markets.

  • The ECB meeting last week delivered the expected 25bps hike taking the deposit rate to 3.75%, equivalent to the October 2000 record high, the refi rate to 4.25%, and marginal lending facility rate to 4.5%. The BOJ kept rates unchanged but surprised markets by changing its YCC program.

  • Refinitiv IBES data at the midway point of Q2 earnings season has earnings declining 6.4% alongside upside earnings surprises at 78.7% and revenue surprises at 64%.

  • Public equity valuations aren’t alone in the lofty zone. Private equity (buyout) valuations look very stretched relative to historical ranges with year-end 2022 sporting purchase price multiples of 13x and debt multiples over 7x.

  • China’s Politburo signaled only targeted stimulus measures as opposed to broad based fiscal or monetary loosening. The Hang Seng fell 2% on the announcement.

  • Russia’s refusal to renew the Black Sea Grain Initiative after expiration on July 17th raises supply side risks in ag markets. Wheat and corn prices have surged by 16% and 11%, respectively since Russia’s action.

Economic Release Highlights

  • Second quarter U.S. GDP came in well above the spot consensus forecast (2.4% vs 1.5%) and more in line with the Atlanta Fed GDPNow modeled forecast. Personal Consumption Expenditures of 1.6% came in slightly ahead of consensus but within the 1.1%-4.1% range.
  • June PCE inflation data showed continued deceleration with headline readings of 3.0% YOY / 0.2% MoM alongside core readings of 4.1% YOY / 0.2% MoM.

  • Second quarter Employment Cost Index grew 1% versus spot consensus of 1.1% and a forecast range of 1.0%-1.3%, a reduction from Q1 reading of 1.2%.

  • Personal Consumption Expenditures of 0.5% ticked higher and slightly exceeded estimates while Personal Income of 0.3% fell slightly under the spot forecast.

  • July U.S. flash PMI (C,M,S) registered 52.0, 49.0, 52.4 with manufacturing exceeding the forecast of 46.0 and services falling short of consensus forecast of 54.0.

  • July’s flash non-U.S. PMIs (C,M,S) for the Eurozone (48.9,42.7,51.1) and UK (50.7,45.0,51.5) revealed some downside surprises.

  • Consumer Confidence reading for July registered 117.0, well above consensus estimate of 111.8 and the forecast range of 108.0-116.0. July’s final revision to UofM Consumer Sentiment took it down from 72.6 to 71.6.

  • The June Durable Goods Orders reports on New Orders (4.7% vs 0.5%), Ex-Transportation (0.6% vs -0.1%), and Core Capital Goods (0.2% vs -0.1%) beat consensus forecasts across the board.

  • Case-Shiller Home Price Index for May posted a gain MoM of 1% versus consensus estimate of 0.8% and a YOY decline of 1.7% versus a consensus call for a 2.5% decline.

  • New (697k) and Pending (0.3%) Home Sales were both within their respective forecast ranges.

This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
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