Holiday Week Led To Lower Equities

Market Down and Dirty

Last Week’s Economic/Market Summary

Data

• U.S. equities struggled as they ended the holiday-shortened week lower.
  • S&P 500 -1.07% Dow -1.91% Russell 2000 -1.37%, Nasdaq -0.92%1
    • The All-Country World Index lost -1.38%.1
  • S&P 500 sub-sectors were mostly lower last week.
    • Real Estate was the lone bright spot with a gain of +0.27%.1
    • Healthcare, Materials, & Tech led to the downside with losses over 1.5%.1
  • The CBOE Volatility Index (VIX) rose 8.98% to end at 14.81. 1
• US Treasury bond yields shot higher last week to close year highs of 2023.
  • US 2yr +0.07% at 4.94%, 10yr +0.25% to 4.06%, 30yr +0.20% to 4.05%.1
  • The MOVE index which tracks bond market volatility rose to its highest level since March. 1
• Commodities as an aggregate asset class were slightly higher last week.
  • WTI Crude rose +4.25%.1
  • Gold increased +0.29%.1
  • The US Dollar index declined -0.63%.1
• In our opinion, U.S. economic data continued to be mixed last week.
  • The Fed’s meeting minutes indicated all voters anticipate more rate hikes this year. 1
  • June job data highlighted a resilient labor market with quits risings and depressed claims. 1
  • Wage growth was higher for the month and year than expectations. 1
• An index of equities outside the US (FTSE All-World ex-US) sank -1.62%.1

Conclusion

• US Equities fell in the holiday-shortened week as solid data on the labor market and services activity rekindled concern the Fed will keep raising rates to tame inflation.
  • All major indices were negative last week.
    • The Nasdaq led major indices with a loss of less than 1%.1
  • This came despite investor sentiment measures showing the largest percentage of bulls over bears so far in 2023. 1
    • Additionally, short interest or investors betting on declining stock prices sank back to average levels across most industries. 1
  • Markets were shaken Thursday after stronger-than-expected private payrolls data bolstered bets the Fed is on track to tighten this month and mull another hike as soon as September.
• S&P 500 subsectors were all lower last week outside of a small gain in Real Estate.
  • Healthcare and Materials led to the downside. 1
  • Financials were one of the better performers despite being down.
    • We believe if the yield curve continues its recent bear steepening move and market participants price out a recession, Financials could catch-up a great deal after underperforming for much of the last 2 years.
• US Treasury yields moved higher last week as the longer maturities outpaced shorter issues.
  • The 2/10yr inversion declined by over 0.20% reflecting a bear steepener in yields when the longer maturities rise much faster than shorter ones. 1
  • Yields have approached their highest levels seen so far this year with the 2yr & 5yr hitting their 2007 peaks. 1
  • The ICE/BofA MOVE Index, measuring bond market volatility, rose the most since March.
    • On the back of bond market volatility, a pair of ETF funds tracking corporate bonds saw a nearly $2 billion flight after data underscoring jobs strength solidified bets the Federal Reserve will resume its interest-rate hikes. 1
  • We continue to monitor the credit markets as under the surface, cracks continue to linger with high-yield default rates picking up in the US as floating rate structures lead the risk.
• While tech has led the broader markets higher this year, we want to take a little deeper dive:
  • Valuations for tech shares look high by historical standards, especially with the Federal Reserve likely to boost interest rates again this month.
    • Buoyed by the potential for artificial intelligence, the Nasdaq 100 Index trades at 26 times projected earnings, or some 30% above its 10-year average. 1
  • The return spread between the seven largest stocks in the S&P 500 compared with the rest of the index hit the widest since the dot-com bubble in the first six months of ’23. 1
    • Excluding the group, which at times this year has included Berkshire Hathaway Inc., the index would have only returned 6.3% in the first half, instead of 16%.1
  • Additionally, insider selling in many of the largest tech names is at the highest levels in a decade. 1

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 7/7/2023 

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