Weekly Market Update — May 13, 2023

  • It was a mixed week for U.S. equity markets as the tech-laden NASDAQ (+0.4) squeaked out a slim gain, the large-cap and diversified S&P 500 (-0.3%) squeaked out a slim loss, and the mega-cap DJIA and small-cap Russell 2000 both lost a disappointing 1.1%
  • Politics played a role in souring Wall Street’s mood, as worries about the looming debt ceiling date hung over the market after Treasury Secretary Yellen warned of “economic chaos” if the debt ceiling is not raised
  • Wall Street and Main Street also digested another round of inflation data from the April Consumer and Producer Price Indices, which were both generally in line with expectations, but still stubbornly too high for Main Street
  • The University of Michigan Consumer Sentiment Survey for May saw a steep drop in sentiment and a big increase future inflation expectations
  • Of the 11 S&P 500 sectors, nine declined, with the defensive and interest-rate sensitive names being especially hard-hit including Energy (-2.2%), Materials (-2.0%), Industrials (-1.2%) and Financials (-1.4%)
  • The only two sectors that were positive were Communication Services (+4.3%) and Consumer Discretionary (+0.6%)
  • The 2-year Treasury yield rose to 3.98% this week and the 10-year Treasury rose to 3.46%
  • The U.S. Dollar Index rose 1.4% to 102.71
Weekly Market Performance

Close Week YTD
DJIA 33,300 -1.1% +0.5%
S&P 500 4,124 -0.3% +7.4%
NASDAQ 12,284 +0.4% +17.4%
Russell 2000 1,741 -1.1% -1.2%
MSCI EAFE 2,126 -1.0% +9.4%
*Bond Index 2,126.22 -0.08% +3.75%
10–Year Treasury Yield 3.46% +0.04% -0.5%

*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.

Equity Markets Mostly Fall This Week

This week brought a mixed bag for the major U.S. equity indices as only NASDAQ was able to register a modest gain whereas the S&P 500, DJIA and Russell 2000 all reported losses.

The tech-heavy Nasdaq was helped by a surge in Google (Alphabet) after it debuted its new artificial intelligence-based search platform. The 30-stock, mega-cap DJIA on the other hand, was hurt by Disney, after its report of a decline in subscribers to its streaming platform, Disney+. Financial stocks continued to underperform primarily over worries

There was a lot of media coverage and angst over the looming debt ceiling date as the existing debt ceiling was hit on January 19th, forcing the U.S. Treasury to initiate extraordinary measures to pay for the country’s bills. And according to Treasury Secretary Yellen, those extraordinary measures will be exhausted by June 1st. A meeting at the White House on Tuesday did not seem to reach any results and Friday’s scheduled meeting was cancelled until next week.

The week’s most watched data was the release of the Consumer Price Index for April and it came in at 4.9%, a tad less than the 5.0% expected. The good news is that this was the smallest annual increase since April 2021 and the 10th straight month of improvement since inflation peaked in June of last year at 9.11%.

Unfortunately, gasoline prices rose from the previous month, but food prices dropped as it came in at an annual increase of 7.1%. Also, as in most of the past months, the biggest contributor to inflation was housing.

There was a lot more economic data reported this week, including:

  • Wholesale Inventories were flat in March following a prior increase of 0.1%;
  • The April NFIB Small Business Optimism Index fell to 89.0 – a 10-year low;
  • The weekly MBA Mortgage Applications Index rose 6.3% with refinancing applications jumping 10% and purchase applications rising 5%;
  • The April Treasury Budget showed a surplus of $176.2 billion compared to a surplus of $308.2 billion a year ago;
  • April PPI came in at 0.2%;
  • April Core PPI came in at 0.2%;
  • Weekly Initial Claims were 264K;
  • April Import Prices were up 0.4%;
  • April Import Prices ex-oil was flat at 0.0%;
  • April Export Prices were up 0.2%; and
  • The May University. of Michigan Consumer Sentiment plummeted to 57.7.

Inflation Rises in April

The Consumer Price Index for All Urban Consumers rose 0.4% in April on a seasonally adjusted basis, after increasing 0.1% in March, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 4.9% before seasonal adjustment.

“The index for shelter was the largest contributor to the monthly all items increase, followed by increases in the index for used cars and trucks and the index for gasoline. The increase in the gasoline index more than offset declines in other energy component indexes, and the energy index rose 0.6% in April. The food index was unchanged in April, as it was in March. The index for food at home fell 0.2% over the month while the index for food away from home rose 0.4%.

  • The index for all items less food and energy rose 0.4% in April, as it did in March.
  • Indexes which increased in April include shelter, used cars and trucks, motor vehicle insurance, recreation, household furnishings and operations, and personal care.
  • The index for airline fares and the index for new vehicles were among those that decreased over the month.

The all items index increased 4.9% for the 12 months ending April; this was the smallest 12-month increase since the period ending April 2021. The all items less food and energy index rose 5.5% over the last 12 months. The energy index decreased 5.1% for the 12 months ending April, and the food index increased 7.7% over the last year.”

Inflation Over the Past 20 Years

Consumer Sentiment Plummets

The University of Michigan reported that “consumer sentiment tumbled 9% amid renewed concerns about the trajectory of the economy, erasing over half of the gains achieved after the all-time historic low from last June. While current incoming macroeconomic data show no sign of recession, consumers’ worries about the economy escalated in May alongside the proliferation of negative news about the economy, including the debt crisis standoff. Year-ahead expectations for the economy plummeted 23% from last month. Long-run expectations slid by 16% as well, indicating that consumers are worried that any economic downturn will not be brief. Throughout the current inflationary episode, consumers have shown resilience under strong labor markets, but their anticipation of a recession will lead them to pull back when signs of weakness emerge. If policymakers fail to resolve the debt ceiling crisis, these dismal views over the economy will exacerbate the dire economic consequences of default.”

In addition, “year-ahead inflation expectations receded slightly to 4.5% in May after spiking to 4.6% in April. After two years of relative stability, long-run inflation expectations rose to their highest reading since 2011, lifting from 3.0% last month to 3.2% this month.”

Vacancy Rates Higher Versus This Time Last Quarter and Last Year

The U.S. Census Bureau announced the following residential vacancies and homeownership statistics for the first quarter 2023:

  • National vacancy rates in the first quarter 2023 were 6.4% for rental housing and 0.8% for homeowner housing.
  • The rental vacancy rate was higher than the rate in the first quarter 2022 (5.8%) and higher than the rate in the fourth quarter 2022 (5.8%).
  • The homeowner vacancy rate of 0.8% was virtually the same as the rate in the first quarter 2022 (0.8%) and virtually the same as the rate in the fourth quarter 2022 (0.8%).
  • The homeownership rate of 66.0% was not statistically different from the rate in the first quarter 2022 (65.4%) and not statistically different from the rate in the fourth quarter 2022 (65.9%).
  • In the first quarter 2023, the median asking rent for vacant for rent units was $1,462.
  • In the first quarter 2023, the median asking sales price for vacant for sale units was $319,000.
  • Approximately 89.6% of the housing units in the United States in the first quarter 2023 were occupied and 10.4% were vacant.
  • Owner-occupied housing units made up 59.1% of total housing units, while renter-occupied units made up 30.5% of the inventory in the first quarter 2023.
  • Vacant year-round units comprised 7.9% of total housing units, while 2.5% were vacant for seasonal use.
  • Approximately 2.1% of the total units were vacant for rent, 0.5% were vacant for sale only and 0.6% were rented or sold but not yet occupied.
  • Vacant units that were held off market comprised 4.8% of the total housing stock – 1.5% were for occasional use, 0.8% were temporarily occupied by persons with usual residence elsewhere (URE) and 2.5% were vacant for a variety of other reasons.

bls.gov;census.gov;umich.edu ;msci.com;fidelity.com;nasdaq.com;wsj.commorningstar.com;

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