EQUITIES UP AGAIN AS THE S&P 500 ENTERS BULL MARKET TERRITORY AND SMALL CAPS MAKE A STRONG JUMP ON THE WEEK

Weekly Market Update — June 10, 2023

• It was another positive week for U.S. equity investors, as the S&P 500 (+0.4%) notched its 4th consecutive week of gains and inched into bull-market territory, as it is now up more than 20% from its low this past October
• NASDAQ (+0.1%), however, recorded its 7th consecutive weekly gain, and extended its YTD gain to more than 26%
• Smaller-caps outperformed this week, as the Russell 2000 jumped 1.9% and the mega-cap DJIA turned in a respectable 0.3% gain
• Of the 11 S&P 500 sectors, 9 advanced, led by Consumer Discretionary (+2.4%), Energy (+1.7%), Industrials (+1.4%) and Financials (+1.1%)
• The Information Technology (-0.7%) and Consumer Staples (-0.5%) sectors underperformed
• Weekly initial jobless claims came in at the highest level (261,000) since November 2021
• In Treasury news, the 2-year Treasury rose 11 basis points to 4.62% and the 10-year Treasury rose 6 basis points to 3.75%
• The fed funds futures market is pricing in a 28% probability of a 25 basis points rate hike for June and a 70% probability of a 25 basis points rate hike for July
• WTI Crude ended the week down 2% and closed just north of $70/barrel

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Equities Up This Week as S&P 500 Enters Official Bull Market

Stocks inched higher this week, as trading was light as Wall Street tried to figure out whether the Fed might raise rates or pause at its next policy meeting next week. Traders are interestingly betting against a rate hike next week while they are more confident of a rate hike at the Fed’s July meeting.

But Wall Street and Main Street were generally happy as the S&P 500 Index moved into bull market territory, as it is up more than 20% from its mid-October lows. And interestingly, it was also a week where small-caps notably outperformed the large- and mega-caps, suggesting a broadening of market gains.

The week was relatively light in terms of economic data, including:

• The IHS Markit Services PMI rose to 54.9 in the final reading for May from 53.6
• The ISM Non-Manufacturing Index for May decreased to 50.3% from 51.9% in April
• Factory orders increased 0.4% month-over-month in April
• Shipments of manufactured goods decreased 0.4% month-over-month
• The weekly MBA Mortgage Applications Index fell 1.4% with purchase applications declining 2.0% and refinancing applications falling 1.0%
• The U.S. trade deficit widened to $74.6 billion in April
• Consumer credit increased by $23 billion in April
• Initial jobless claims increased 28,000 to 261,000, their highest level since November 2021
• Wholesale inventories fell 0.1% in April

Jobless Claims Up

In the week ending June 3, the advance figure for seasonally adjusted initial claims was 261,000, an increase of 28,000 from the previous week’s revised level. This is the highest level for initial claims since October 30, 2021 when it was 264,000.

Further:

• The 4-week moving average was 237,250, an increase of 7,500 from the previous week’s revised average.
• The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending May 27.
• The 4-week moving average was 1,784,750, a decrease of 12,500 from the previous week’s revised average.

Retail Trade Corporations’ After-Tax Profits Up in 1Q While Manufacturing Corporations’ Profits are Down in 1Q

The U.S. Census Bureau today announced the following seasonally adjusted quarterly after-tax profits for retail trade industries statistics for First Quarter 2023:

Finally, the rate of employees quitting their jobs has fallen, another sign of a softening labor market.

After-Tax Profits and Sales, 1Q 2023 – Seasonally Adjusted, Retail Trade Corporations

• Seasonally adjusted after-tax profits of U.S. retail corporations with assets of $50 million and over totaled $36.6 billion, up $5.6 billion from the $31.0 billion recorded in the fourth quarter of 2022.
• This is up $1.7 billion from the $35.0 billion recorded in the first quarter of 2022.
• Seasonally adjusted sales for the quarter totaled $1,001.6 billion, not statistically different from the $1,002.3 billion in the fourth quarter of 2022 and not statistically different from the $994.2 billion in the first quarter of 2022.

The U.S. Census Bureau also announced today the following seasonally adjusted quarterly after-tax profits for manufacturing industries statistics for First Quarter 2023:

After-Tax Profits and Sales, 1Q 2023 – Seasonally Adjusted, Manufacturing Corporations

• U.S. manufacturing corporations’ seasonally adjusted after-tax profits in the first quarter of 2023 totaled $230.5 billion, down $4.1 billion from the after-tax profits of $234.6 billion recorded in the fourth quarter of 2022.
• This is down $35.8 billion from the after-tax profits of $266.3 billion recorded in the first quarter of 2022.
• Seasonally adjusted sales for the quarter totaled $2,050.4 billion, down $19.7 billion from the $2,070.1 billion recorded in the fourth quarter of 2022, but not statistically different from the $2,019.9 billion in the first quarter of 2022.

Mortgage Applications Down Again

Mortgage applications decreased 1.4% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey.

“The Market Composite Index, a measure of mortgage loan application volume, decreased 1.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 12 percent compared with the previous week. The Refinance Index decreased 1 percent from the previous week and was 42 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 13 percent compared with the previous week and was 27 percent lower than the same week one year ago.”

United States Mortgage Applications

“Mortgage rates declined last week from a recent high, but total application activity slipped for the fourth straight week. The 30-year fixed rate dipped to 6.81 percent, 10 basis points lower than last week but still the second highest rate of 2023. Overall applications were more than 30 percent lower than a year ago, as borrowers continue to grapple with the higher rate environment. Purchase activity is constrained by reduced purchasing power from higher rates and the ongoing lack of for-sale inventory in the market, while there continues to be very little rate incentive for refinance borrowers. There was less of a decline in government purchase applications last week, which was consistent with a growing share of first-time home buyers in the market.”

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