Economic Market Summary: U.S. Equities Finish Strong For A 5th Straight Week

Market Down and Dirty

Last Week’s Economic/Market Summary

Data

  • U.S. equities finished higher for the 5th straight week.
    • S&P 500 +2.22% Dow +1.31% Russell 2000 +0.49%, Nasdaq +3.25%1
      • The All-Country World Index gained 2.66%.1
    • S&P 500 sub-sectors were mostly higher last week.
      • Tech & Materials led to the upside with gains over 3.5%.1
      • Energy was the only negative sector ending the week at -0.58%.1
    • The CBOE Volatility Index (VIX) dropped slightly to finish the week at a multi-year low.
  • US Treasury bond yields were higher on the short-end while the 30yr dropped.
    • US 2yr +0.11% at 4.70%, 10yr +0.02% to 3.77%, 30yr -0.03% to 3.86%.1
    • The 0.97% inversion of 2/10yr reached levels not seen since March. 1
  • Commodities as an aggregate asset class were slightly higher last week.
    • WTI Crude gained +1.75%.1
    • Gold declined -0.20%.1
    • The US Dollar index sank -1.23%.1
  • In our opinion, U.S. economic data continued to be mixed last week.
    • May consumer inflation fell to +4% for the month but stayed +5.3% for the year. 1
    • US Retail sales surprised to the upside in May. 1
    • US Consumer sentiment improved last month. 1
  • An index of equities outside the US (FTSE All-World ex-US) rose +2.39% last week. 1

Conclusion

  • US Equities ran higher on the back of colling inflation data & the Federal Reserve not hiking rates for the first time since March of 2022.
    • The growth oriented Nasdaq led to the upside once more with a gain of 3.25%.1
      • Interesting to note that since the 1st quarter of this year, the technology sector has broken its strong positive correlation to US interest rates that has held for many years. 1
    • The S&P 500 index just capped a fifth straight week of gains and is now higher than it was the day the Federal Reserve kicked off its hiking campaign.
  • S&P 500 subsectors were mostly higher last week.
    • Tech & Materials led to the upside. 1
      • Tech has been strong but the catch-up in Materials could point to breadth expanding.
    • Despite WTI Crude ending the week higher, the Energy equity sector was the lone negative performer last week.
      • We highlighted how this chance for a “catch-down” could come and it appears to have happened.
      • We continue to monitor the oil markets for any sign of a pick-up in demand, particularly in the diesel markets which remain extremely depressed relative to recent history.
  • The Federal Reserve Open Market Committee met last week and held interest rates where they are. 1
    • While leaving rates unchanged, the Fed warned of more tightening ahead and indicated in their forward looking “dot plot” that on average, Fed members anticipate an additional 0.50% in rate hikes this year. 1
    • There have been six episodes since 1970 where the central bank increased rates by more than 1% over a year or longer and then paused for at least three months. 1
      • In these times, the S&P 500 Index jumping 8.2% on average in the 90 days after such a respite, almost quadrupling its average three-month advance during the period analyzed1
      • The question becomes now…will the pause continue and do market participants believe the Federal Reserve’s forward guidance?
  • While many key economic data points continue to languish, investors have been buying stocks.
    • In the last three weeks, global US equity inflows amounted to $38 billion, the strongest momentum of flows to the asset class since October, according to Bank of America.
    • Markets once bound to the Fed’s efforts to ease economic growth and inflation are now focusing on the health of corporate balance sheets and the potential for a surge in capital outlays as companies retool for an AI boom.
    • Additionally, the macroeconomic data contribution to equity markets has fallen to 71% from 83% since March of this year. 1
      • This is the biggest 3-month drop since 2009 and highlights how market participants are less reliant on economic data in making investment decisions. 1

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net 

 1 Source: Bloomberg – 6/16/2023 

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