U.S. Equities Move Upward On The Back Of Improved Inflation Data

Market Down and Dirty

Last Week’s Economic/Market Summary

Data

  • U.S. equities moved higher last week as inflation data came in better than expected.
    • S&P 500 +2.45% Dow +2.30% Russell 2000 +3.70%, Nasdaq +3.32%1
      • The All-Country World Index lost +3.16%.1
    • S&P 500 sub-sectors were all higher last week.
      • Technology, Consumer Discretionary, & Real Estate led with gains over 2.65%.1
      • Energy was the worst performer with a gain of 0.82%.1
    • The CBOE Volatility Index (VIX) declined 10% to end at 13.34. 1
  • US Treasury bond yields sank last week as deflationary pressures seemed to mount.
    • US 2yr -0.20% at 4.74%, 10yr -0.23% to 3.83%, 30yr -0.12% to 3.93%.1
    • Futures are still at a 92% probability of an additional 0.25% hike next week by the Fed. 1
  • Commodities as an aggregate asset class were higher last week.
    • WTI Crude rose +2%.1
    • Gold increased +1.68%.1
    • The US Dollar index declined -2.16%.1
  • In our opinion, U.S. economic data continued to be mixed last week.
    • Both consumer & producer measures of inflation came in below expectations last week. 1
    • US consumer credit expansion slowed dramatically in the latest data. 1
    • Unemployment claims fell while consumer sentiment showed further strength. 1
  • An index of equities outside the US (FTSE All-World ex-US) rose 4.0%.1

Conclusion

  • US Equities rose across the board last week in one of the broadest weekly advances so far in ’23.
    • All major indices were positive last week led by the small-cap tracking Russell 2000.
    • The latest CPI inflation data came in below expectations which seemed to bolster investor confidence in a soft or no landing scenario for the economy.
      • Additionally, other economic data measures came in better than expected.
  • S&P 500 subsectors were all higher last week.
    • The growth-oriented sectors and year to date leaders once again paced equities higher.
    • Interesting to note that Energy continues to lag the overall market.
      • We believe this is in response to the lack of any Chinese stimulus in the face of their growing economic slowdown.
  • GDP in China grew at a slower than expected pace in the 2nd quarter as compared to a year ago when dozens of Chinese cities were still in lockdown. 1
    • The data showed economy-wide prices declining for the 1st time since 2020 while youth unemployment skyrocketed to above 21%.1
    • Despite this, Beijing continues to emphasize that stimulus measures this year will likely be limited in scale.
  • US Treasuries declined across the maturity curve, driven by lower inflation data.
    • The current deeply inverted yield curve continues to price in an upcoming recession.
    • However, if a recession does not occur in the next couple of quarters, we feel there is a growing possibility yields will need to rise further on the long-end relative to the short maturities.
  • Gold continues to hold in despite the recent rise in real interest rates.
    • Note that precious metals often times move inversely to real rates.
  • International equities outperformed to the upside with a gain of 4%.1
    • A big contributor to this gain was the US dollar getting crushed by over 2% on the week. 1
    • The US Dollar is now down to levels not seen in over 15 months but is not yet making new lows. 1
      • A weaker dollar is generally a benefit to any US company doing business abroad, as the products cost less in foreign currencies, thereby boosting potential profits.
  • All eyes will turn from inflation data to the earnings season that got underway last week with several companies surprising to the upside and a few issuing cautious outlooks.
    • The bulk of earnings season is to come over the next 6 weeks.
      • Many investors will be focusing on companies forward outlooks as economic uncertainty lingers.
    • Interesting to note that equity strategists are boosting earnings forecasts for the S&P 500 for the upcoming year faster than they are marking them down. 1
      • We believe this is yet another example of how Wall Street expectations often follow the price of stocks in a reactive manner.

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 7/14/2023 

Disclosures: The information provided in this paper is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal or tax advice. Capital Investment Advisory Services, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of or reliance on the information. This information is subject to change and, although based on information that Capital Investment Advisory Services, LLC considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data suppliers. For investment related terms definitions, please visit: www.investopedia.com Past performance is no guarantee of future results. Additional information about CIAS and its Form ADV Part 2A are available on the SEC’s website at www.adviserinfo.sec.gov Advisory services through Capital Investment Advisory Services, LLC Securities may be offered through Capital Investment Group, Inc. Member FINRA/SIPC Both firms located at 100 E. Six Forks Rd. Suite 200, Raleigh, NC 27609 919-831-2370