|EQUITIES SNAP THEIR WINNING WAYS AS THE FED ONCE AGAINS LOOMS OVER WALL STREET WITH ADDITIONAL 2023 RATE HIKES EXPECTED
Weekly Market Update — June 24, 2023
|Weekly Market Performance
*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 Snap Their Winning Ways
The major U.S. benchmarks snapped a 5-week (the S&P 500) and 8-week (NASDAQ) winning streak on the holiday-shortened trading week. Despite the negative numbers, Growth stocks outperformed Value shares, but Large-caps outperformed Smaller-caps by a healthy margin. Markets were closed on Monday in observance of the Juneteenth holiday.
The biggest shadow hanging over Wall Street was once again the Fed, as Wall Street is bracing for additional Federal Reserve rate hikes later this year, despite the Fed recently pausing its 10-rate hike streak. In prepared testimony before Congress, Fed Chair Powell said that “nearly all expect that it will be appropriate to raise interest rates somewhat further by the end of the year.” That’s pretty clear.
Further, the Fed’s latest Summary of Economic Predictions showed that a majority of those on the policy committee expect at least two 25-basis point rate hikes this year. And it didn’t help Wall Street’s worries when a bunch of central banks outside the U.S. – like the Bank of England and Norway’s central bank – hiked rates.
Reviewing the week’s economic data, we saw that:
Leading Indicators Decline Again
On Thursday, the Conference Board announced that its Leading Economic Index (LEI) for the U.S. declined by 0.7% in May 2023 to 106.7 (2016=100), following a decline of 0.6% in April. The LEI is down 4.3% over the six-month period between November 2022 and May 2023 – a steeper rate of decline than its 3.8% contraction over the previous six months from May to November 2022.
Directly from the release: “the US LEI continued to fall in May as a result of deterioration in the gauges of consumer expectations for business conditions, ISM New Orders Index, a negative yield spread, and worsening credit conditions. The US Leading Index has declined in each of the last fourteen months and continues to point to weaker economic activity ahead. Rising interest rates paired with persistent inflation will continue to further dampen economic activity. While we revised our Q2 GDP forecast from negative to slight growth, we project that the US economy will contract over the Q3 2023 to Q1 2024 period. The recession likely will be due to continued tightness in monetary policy and lower government spending.”
Further, the Conference Board Coincident Economic Index (CEI) for the U.S. increased by 0.2% in May 2023 to 110.2 (2016=100), after rising by 0.3% in April. The CEI is now up 0.8% over the six-month period between November 2022 and May 2023—down slightly from the 0.9% growth it recorded over the previous six months. The CEI’s component indicators—payroll employment, personal income less transfer payments, manufacturing trade and sales, and industrial production—are included among the data used to determine recessions in the US. While recent data for industrial production have contributed negatively to coincident index, sales, employment, and income growth remained positive.
Finally, the Conference Board Lagging Economic Index (LAG) for the U.S. increased by 0.1% in May 2023 to 118.4 (2016 = 100), reversing a decline of 0.1% in April. The LAG is up 0.6% over the six-month period from November 2022 to April 2023, much slower than its growth rate of 3.3% over the previous six months.
Building Permits, Housing Starts and Housing Completions Up From April
On Tuesday, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced the following new residential construction statistics for May 2023:
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