U.S. and International Equities
Markets Mostly Lower
The major market indexes ended mostly lower for the second straight week on the back of higher oil prices and rising interest rates amid somewhat mixed support for the disinflation narrative. As we head toward the end of earning season, the earnings beat rate is above analyst expectations, however revenue growth has been marginal. Next week, retail earnings will be in focus as investors will be keying in on consumer spending trends across goods and services, sector inventories, and the general inflation outlook.
According to the AAII Sentiment Survey, investor optimism is above average for the 10th consecutive week, however bullish sentiment decreased as both neutral and bearish sentiment increased. Moreover, the AAII reports that the present bullish sentiment represents the longest streak above-average since a 13-week stretch from February to May 2021.
Fixed Income Returns Mixed
The Bloomberg Aggregate Bond Index ended lower for the fourth straight week. July’s improving inflation print does not appear to have traders believing the Federal Reserve (Fed) is near the end of its campaign of raising interest rates. This, in light of the fact that some members of the Fed mentioned this week that the bank is not done fighting inflation.
Per Morningstar, open-ended intermediate core and core plus bond funds (mutual funds and ETFs) have had strong inflows of over $100 billion during the first half of 2023. These inflows come at an opportune time, allowing money managers to support the bond market as the Fed continues to run quantitative tightening (QT) and banks see declining deposits, both of which have taken a step back from supporting core bond markets.
Energy prices ended higher as the major metals (gold, silver, and copper) sold off this week. With U.S. stockpiles of crude oil and fuel products still lower than expected, reflecting stronger than anticipated demand, prices for West Texas Intermediate (WTI) have climbed above $80 a barrel.
In addition, as forecasts for a stronger economic recovery prove to be correct, oil demand should see a pickup in the U.S. and globally. How this affects the inflationary and economic landscape could play a major role for second half market performance.
Economic Weekly Roundup
Inflation increased marginally last month, snapping a 12-month streak of slowing consumer price increase. In addition, the report could signal that the rest of the battle to curb a historic spike in consumer costs could be more challenging. Consumer prices, in general, increased 3.2% from a year earlier, which is up from 3% in June year-over-year.
July Small Business Report
The National Federation of Independent Business (NFIB) released its Small Business Optimism Index, which increased to 91.9 in July from 91.0 in June; however, the reading was the 19th consecutive month below the 49-year average of 98. The lack of qualified applicants along with inflation were cited as concerns.
In addition, the National Federation of Independent Business (NFIB) report revealed small businesses plan to increase capital expenditures (capex). The capex index jumped from 25 to 27 in July, up from a recent low of 19 in April (see chart below) and above the post-pandemic average of 24.9.
Japanese Household Spending
Japanese household spending declined 4.2% year over year in the month of June as consumers contend with both elevated prices and declining real wages. June was the fourth straight month household spending fell. Despite an almost 4% pay hike this year, employees of Japanese companies still experienced a 1.6% year-over-year decline in real wages in June. June was the fifteenth straight month for real wage declines.
Weekly Employment Report
Initial claims for the latest week came in above economists’ consensus expectation and exceeded the prior week’s print. Meanwhile, continuing claims, which are tallied with a one-week lag relative to initial filings, were below consensus along with the prior week. The labor market is expected to further loosen over the coming months as companies respond to slowing demand, partly driven by the Fed’s tighter monetary policy.
The following economic data is slated for the week ahead.
- Tuesday: Export / Import Index (Jul), Retail Sales (Jul), Business Inventories (Jun), NAHB Housing Market Index (Aug)
- Wednesday: Business Permits (Jul), Housing Starts (Jul), Capacity Utilization (Jul), Industrial Production (Jul), Manufacturing Production (Jul), FOMC Minutes
- Thursday: Weekly Initial and Continuing Unemployment Claims, Leading Indicators (Jul)
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. For more information on the risks associated with the strategies and product types discussed please visit https://lplresearch.com/Risks
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Investing involves risk including the loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Bond yields are subject to change. Certain call or special redemption features may exist with could impact yield. High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.
For a complete list of descriptions of the indexes and economic terms referenced in this publication, please visit our website at lplresearch.com/definitions
Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations |
Not Bank/Credit Union Guaranteed | May Lose Value