Mixed Economic News See A Drop in U.S. Equities

Market Down and Dirty

Last Week’s Economic/Market Summary


  • S. equities moved lower last week.
    • S&P 500 -2-21%% Dow -1.11% Russell 2000 -1.15%, Nasdaq -2.85%[1]
      • The All-Country World Index was lower by -2.36%.1
    • S&P 500 sub-sectors were mostly deeply negative last week.
      • Energy led to the upside with a gain of 1.25%.1
      • Technology & Utilities led to the downside with losses over 3%.1
    • The CBOE Volatility Index (VIX) rocketed higher by 28% to end the week at 17.10. 1
  • US Treasury bond yields were mixed last week.
    • US 2yr -0.09% at 4.78%, 10yr +0.09% to 4.05%, 30yr +0.18% to 4.21%.1
    • The yield curve inversion shrunk as short-end yields went lower while the long-end went higher.
  • Commodities as an aggregate asset class were mixed last week.
    • WTI Crude rose +2.51%.1
    • Gold was down -0.87%.1
    • The US Dollar index gained +0.37%.1
  • In our opinion, U.S. economic data continued to be mixed last week.
    • Fitch cut its ratings of US gov’t debt to AA+ from AAA in a surprise move. 1
    • Job growth came in below expectations while average hourly earnings surprised to the upside. 1
    • ISM supply surveys showed a drop in demand with manufacturing PMI still contracting. 1
  • An index of equities outside the US (FTSE All-World ex-US) sank -3.04%.1


  • US Equities declined across the board for the first broad move lower in a month.
    • The Nasdaq led to the downside as Apple’s disappointing sales weighed on the index. 1
    • A continued spike in bond yields also seemed to weigh on equities.
    • Institutional investors have been selling long positions and covering shorts in tandem to reduce leverage (degrossing) at a rate not seen since 2021 according to data from JP Morgan, Goldman, & Morgan Stanley.
  • S&P 500 subsectors were mostly lower last week.
    • Energy was the only positive sector, rising over a percent, yet it remains negative so far in ’23.
      • Saudi Arabia & Russia extended their supply cuts while US stockpiles sank by a record amount boosted crude prices last week. 1
    • Growth oriented equities & those most exposed to interest rates were hit the hardest last week.
  • US Treasury yields bear steepened once more last week as the short maturities saw yields decline while the 10year & 30year maturities rose.
    • The ETF tracking long US Treasuries sank over 3% last week after attracting the 2nd highest inflow of new investment the week before. 1
    • The one-month correlation between the Bloomberg US Treasury Total Return Index and the S&P 500 strengthened this week to 0.82. 1
      • A reading of 1 means bonds and stocks always move in tandem, while -1 means the opposite.
      • Between 2000 and 2021, it averaged -0.3. 1
    • The current weakness of bonds as a risk hedge was on full display Wednesday.
      • Treasuries fell across the curve, with the 10-yr yield jumping to 4.12%, the highest since November 2022, while the S&P 500 Index fell 1.4%, its biggest drop since May. 1
  • Since the turn of the century, investors have mostly demanded higher returns on riskier assets.
    • But that’s not how it’s been this year as in July, forward earnings yield for the Russell 1000 — the reciprocal of its price-earnings ratio — stood at 4.8%, below the 5.4% payout offered by investment grade corporate bonds. 1
    • Morgan Stanley found that only happened 2% of the time in the last two decades. 1
  • As discussed last week, a pullback in stocks is to be expected based on the recent run higher and August/September seasonality.
    • This dynamic combined with positioning that is opposite to start the year.
    • Positioning remains stretched as investors unusual risk appetite is illustrated most explicitly in the multiples that they’re willing to pay for stocks versus bonds despite three quarters of falling profits in equities.
  • With 84% of S&P 500 constituents reporting earnings, the results depend on where you look. 1
    • While 79% of companies have surprised on earnings per share only roughly half have beaten revenue expectations. 1
    • Sales growth is well below historical averages and outright revenue misses are twice the norm. 1
    • 15% of S&P 500 companies have issued negative forward guidance, 3x the avg of last 5 years. 1

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 8/4/2023 

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