EQUITIES JUMP ON THE WEEK AS 1Q GDP IS REVISED UP AND NEW HOME SALES AND DURABLE GOODS ORDERS SURPRISE ON THE UPSIDE

Weekly Market Update — July 1, 2023

• Wow, did equity markets bounce back this week to close out the week, the month and the quarter
• Focusing on just the weekly returns, the major U.S. equity indices all jumped more than 2%, with the smaller-cap Russell 2000 (+3.7%) leading the way, followed by the large-cap S&P 500 (+2.3), the tech-laden NASDAQ (+2.2%) and the mega-cap, 30-stock DJIA (+2.0%)
• To give perspective on how great a week it was, every single one of the 11 S&P 500 sectors finished higher
• The best performing sectors were Real Estate (+5.0%) and Energy (+4.8%) whereas Consumer Staples (+0.6%) and Health Care (+0.6%) were the “underperformers”
• Investors also watched as the S&P 500 seemed to break out of its fictional-cap-level, as it pushed past 4,200 on its way to over 4,450
• As the week drew to a close, so did the month of June and Wall Street celebrated that both the S&P 500 and NASDAQ recorded their 4th consecutive month of positive returns
• The week saw a lot of encouraging economic news too, as Durable Goods Orders and New Home Sales came in better than expected and GDP was revised upwards
• The Fed was back in the news too, but not about whether or not it will raise rates in July – the Fed performed its annual bank stress test and all 23 banks tested passed
• The Treasury market was fairly active, with the 2-year Treasury yield increasing 13 basis points to 4.88% while the 10-year Treasury yield rose 8 basis points to 3.82%
• The stock market will be closing early on July 3 in observance of Independence Day and will be closed on Tuesday, July 4th

*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.

Stocks Close out the Week, Month and Quarter on a High Note

The major U.S. benchmarks reversed last-week’s declines in a big way, as all the major U.S. indices jumped more than 2% to close out the week and close out the month of June and the second quarter. And when the final Wall Street bell rung out, investors were eagerly awaiting their quarterly performance statements, as there was a lot to celebrate, including that for the 2nd quarter:

• The S&P 500 is up over 8% for its 3rd consecutive quarterly gain and its biggest quarterly advance since the fourth quarter of 2021;
• NASDAQ is up a whopping 13% this quarter as it registered back-to-back quarterly gains; and
• The DJIA is up 3.5% this quarter but recorded its third winning quarter.

And for the YTD:

• The S&P 500 is up more than 16% and turned in its best first half since 2019;
• NASDAQ is up an astonishing 31%+ YTD on its way to its best half since 1983; and
• The DJIA turned in a much more modest 3.9% YTD gain.

Back to focusing on this week, there was a lot of surprising economic data and a broadening of the rally, as small-caps outperformed dramatically and value rallied relative to growth too. And while the technology-heavy NASDAQ underperformed relative to small-caps and even the large-cap S&P 500 on the week, its YTD performance is record-setting (best start to the year since 1983).

Of the surprising economic data on the week that contributed to an almost-giddy mood on Wall Street, we saw that:

• The Personal Consumption Expenditures (PCE) price index increased by 0.1% in May, bringing its year-over-year increase to 3.8%, its lowest level since April 2021.
• The core (excluding food and energy) PCE index, fell to 4.6% on a year-over-year basis.
• Private sector incomes rose 0.5% in May.
• Weekly jobless claims dropped by 26,000 from a 20-month high to 239,000.
• The University of Michigan’s gauge of consumer sentiment hit its best level in four months.
• Durable goods orders rose 1.7% in May.
• May new home sales rose 12.2% in May.
• GDP for 1Q2023 was revised upwards.

GDP Revised Up

As the week came to a close, the Bureau of Economic Analysis reported that real gross domestic product (GDP) increased at an annual rate of 2.0% in the first quarter of 2023. In the fourth quarter, real GDP increased 2.6%

Here is one of the more interesting – and surprising – revelations from the BEA’s press release:

“The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 1.3%. The updated estimates primarily reflected upward revisions to exports and consumer spending that were partly offset by downward revisions to nonresidential fixed investment and federal government spending. Imports, which are a subtraction in the calculation of GDP, were revised down.”

Further:

“The increase in real GDP in the first quarter reflected increases in consumer spending, exports, state and local government spending, federal government spending, and nonresidential fixed investment that were partly offset by decreases in private inventory investment and residential fixed investment. Imports increased.

Compared to the fourth quarter, the deceleration in real GDP in the first quarter primarily reflected a downturn in private inventory investment and a slowdown in nonresidential fixed investment that were partly offset by an acceleration in consumer spending, an upturn in exports, and a smaller decrease in residential fixed investment. Imports turned up.

• Current dollar GDP increased 6.1% at an annual rate, or $391.8 billion, in the first quarter to a level of $26.53 trillion, an upward revision of $43.5 billion from the previous estimate.
• The price index for gross domestic purchases increased 3.8% in the first quarter, the same as the previous estimate.
• The personal consumption expenditures (PCE) price index increased 4.1%, revised down 0.1%. The PCE price index excluding food and energy prices increased 4.9%, a downward revision of 0.1%.

Personal Income

• Current-dollar personal income increased $278.0 billion in the first quarter, an upward revision of $26.7 billion from the previous estimate. The increase primarily reflected increases in compensation (led by private wages and salaries) and personal current transfer receipts (led by government social benefits).
• Disposable personal income increased $587.9 billion, or 12.9 percent, in the first quarter, an upward revision of $26.4 billion from the previous estimate. Real disposable personal income increased 8.5%, an upward revision of 0.7%.
• Personal saving was $840.9 billion in the first quarter, an upward revision of $11.6 billion from the previous estimate.
• The personal saving rate – personal saving as a percentage of disposable personal income – was 4.3% in the first quarter, an upward revision of 0.1%.”

Manufactured Durable Goods Orders Up for 3rd Consecutive Month

On Tuesday, the U.S. Census Bureau announced the May advance report on durable goods manufacturers’ shipments, inventories and orders:

New Orders

New orders for manufactured durable goods in May, up three consecutive months, increased $4.9 billion or 1.7% to $288.2 billion.

• This followed a 1.2% April increase.
• Excluding transportation, new orders increased 0.6%.
• Excluding defense, new orders increased 3.0%.
• Transportation equipment, also up three consecutive months, led the increase, $3.9 billion or 3.9% to $102.6 billion.

New Orders Over the Past 12 Months

Shipments

Shipments of manufactured durable goods in May, up two of the last three months, increased $4.8 billion or 1.7% to $282.7 billion. This followed a 0.6% April decrease. Transportation equipment, also up two of the last three months, led the increase, $4.0 billion or 4.6% to $91.8 billion.

Unfilled Orders

Unfilled orders for manufactured durable goods in May, up five of the last six months, increased $10.6 billion or 0.8% to $1,302.0 billion. This followed a 0.8% April increase. Transportation equipment, also up five of the last six months, drove the increase, $10.8 billion or 1.4% to $803.9 billion.

Inventories

Inventories of manufactured durable goods in May, up five of the last six months, increased $1.2 billion or 0.2% to $522.9 billion. This followed a 1.0% April increase. Machinery, up thirty-one consecutive months, led the increase, $0.5 billion or 0.5% to $94.4 billion.

Capital Goods

Nondefense new orders for capital goods in May increased $5.7 billion or 6.7% to $91.0 billion. Shipments increased $2.7 billion or 3.4% to $82.9 billion. Unfilled orders increased $8.1 billion or 1.1% to $748.7 billion. Inventories increased $0.1 billion or 0.1% to $225.5 billion. Defense new orders for capital goods in May decreased $2.7 billion or 14.7% to $15.9 billion. Shipments decreased $0.2 billion or 1.2% to $13.2 billion. Unfilled orders increased $2.7 billion or 1.3% to $213.6 billion. Inventories increased $0.1 billion or 0.2% to $24.2 billion.

census.gov;bea.gov;msci.com;fidelity.com;nasdaq.com;wsj.com; morningstar.com;