Optimism Of No Recession Increase Equities Again This Week

Market Down and Dirty

Last Week’s Economic/Market Summary

Data

• U.S. equities were higher last week as optimism of no recession coming increased equity appetites.
  • S&P 500 +1.05% Dow +0.66% Russell 2000 +1.01%, Nasdaq +2.02%[1]
    • The All-Country World Index was positive by +1.09%.1
  • S&P 500 sub-sectors were mostly higher last week.
    • Energy, Materials, Tech & Consumer Discretionary led to the upside. 1
    • Real Estate, Utilities, Financials, & Healthcare finished negative. 1
  • The CBOE Volatility Index (VIX) consolidated by 2% to end at 13.32. 1

• US Treasury bond yields were higher last week, led by the longer maturities.
  • US 2yr +0.05% at 4.87%, 10yr +0.12% to 3.96%, 30yr +0.12% to 4.03%.1
  • Bets against US Treasuries which profit from rates rising have risen to historic levels.
• Commodities as an aggregate asset class were higher last week.
  • WTI Crude rose +4.65%.1
  • Gold was slightly down at -0.15%.1
  • The US Dollar index gained +0.62%.1
• In our opinion, U.S. economic data continued to be mixed last week.
  • The first estimate of US 2^nd quarter GDP came in at 2.4%.1
  • The PCE inflation gauge only rose 0.2% on the month and 4.1% since last year. 1
  • Consumer Confidence reached a 2 year high in its latest data.
• An index of equities outside the US (FTSE All-World ex-US) rose +1.64%.1

Conclusion

• US Equities rose as investor optimism continues to look past economic fundamentals towards a US economy defying any odds of a recession in sight.
  • The Nasdaq once more led to the upside as earnings from Meta, Microsoft, & Alphabet (google) showed a pick-up in advertising & storage.
    • Tech firms in the US are talking less about recession and more about artificial intelligence this earnings season — possibly signaling that companies are increasingly optimistic about a soft economic landing.
    • Surging growth-oriented technology stocks are coming at a time when demand for downside protection in these shares are hovering around the lowest levels in at least a decade.
  • For the S&P 500, this was the 8^th weekly advance in the past 10 weeks. 1
    • The Dow rose a record 13 straight days until closing negative one day last week.
• S&P 500 subsectors were mostly higher last week.
  • Energy led to the upside despite heavyweights Exxon & Chevron reporting profits well below expectations and their earnings one year ago.
    • Energy currently trades at the lowest price to earnings valuation of any S&P 500 sector as investors have made large demands of these companies. 1
    • Year to date, Energy remains in negative territory on performance.
  • The often thought of as defensive sectors underperformed last week along with Financials.
• Non-US equities moved higher last week despite a 2^nd straight week of strength in the US Dollar index.
  • China announced new rounds of gov’t efforts to boost consumption in their latest attempts to steer an economic revival of the mainland after its initial post-Covid recovery failed.
    • While markets were anticipating these policies, we remain cautious on the markets prolonged response to them.
    • As the saying goes: “Buy the rumor, sell the news.”
• US Treasury yields were higher across the curve last week.
  • The 10yr & 30yr led the charge higher in what is called a “bear steepener”.
  • The US Federal Reserve last week delivered a quarter-point rate increase and vowed to adopt for a data-dependent approach, reaffirming trader expectations that the US is nearing the end of its tightening cycle as inflation eases. 1
    • While few currently expect the Fed to hike beyond the current policy band of 5.25% to 5.5%, there are plenty of economic indicators to come before the next meeting in September.
• Earnings season is well underway with 51% of S&P 500 companies having reported so far.
  • 80% of companies thus far have reported earnings per share above estimates. 1
  • 64% of companies have reporting revenue above their estimates. 1
  • The current blended growth rate for earnings stands at +0.1%.1
  • The current price to earnings ratio of the S&P 500 stands at 19.4 which is above both the 5 year and 10 year averages. 1

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 7/28/2023 

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