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May 30, 2023 - Markets Mixed Amid Positive Tech Earnings

| May 30, 2023

Index Performance´╗┐

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U.S. and International Equities

Markets Mixed

U.S. stocks ended the week mixed as growth sectors continue to lead. Year to date, growth sectors have outperformed as some investors believe the slowing economy will cause the Federal Reserve to pivot. Positive developments surrounding artificial intelligence have also helped these sectors advance, highlighted this week by Nvidia’s blowout earnings report. Nevertheless, some investors question elevated valuations.

Yesterday was the 100th trading day of the year and it has been a very productive first 100 days for stocks for sure. Through yesterday, about 40% of the way through the year, the S&P 500 Index has gained a solid 8.1% (excluding dividends). Since 1950, in years when the S&P 500 has been up at least 7% through the first 100 trading days, the average gain over the rest of the year has been a robust 9.4%. That compares to the average gain of 5.4% in all years from trading day #101 through year end.

Fixed Income Lower

The Bloomberg Aggregate Bond Index finished lower as bond prices declined while yields increased. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, also ended the week lower.

Expected interest rate volatility, as measured by the MOVE Index, remains elevated relative to the last decade but in line with the periods before central banks started quantitative easing. We believe interest rate volatility will remain elevated as long as the Fed remains committed to reducing the size of its balance sheet. The most interest-rate sensitive fixed income assets are likely at higher risk of increased volatility. But buy-and-hold investors should remember that bonds pay back principal at par regardless of intra-period volatility.

Commodities Mostly Lower

Energy prices finished higher this week as global economic sentiment has improved. In addition, crude oil prices are showing signs of turning the corner. Consumer demand for gasoline is projected to climb as the U.S. enters the summer driving season. Also potentially supporting prices: the Department of Energy announced plans for re-stocking the country’s Strategic Petroleum Reserve, OPEC+ production cuts are in effect, and concerns over the debt ceiling are abating as negotiations progress.

Economic Weekly Roundup

U.S. Retail Sales

Despite sustained inflation and high interest rates, American retail sales grew by 0.4% month over month in April, supported heavily by spending at restaurants and bars, as well as online retailers, which rose by 0.6% and 1.2%, respectively. Auto sales and purchases made at health and personal care stores also increased. However, furniture sales, electronics, appliance purchases, and spending on hobbies all decreased. Investors should know that this indicates that although the American consumer is still feeling the effects of inflation, they are continuing to support the wider economy through regular spending.

Positive China Consumer Spending News

An increase in spending for a recent Chinese holiday shows Chinese consumers are ready to support the nation’s economic recovery. Holiday spending increased as a whole year over year, as spending centered on hotels and movie theaters rose by four and five times, respectively. Other popular gifts, such as lipstick and perfume, also rose. This spending gave members of the Chinese government hope that domestic demand would rise throughout the latter half of 2023, further assisting the country in its economic recovery.

April Japan Manufacturing Data

Increases in output and new orders helped Japan’s manufacturing activity grow for the first time in seven months. The main contributors to this jump in activity were sustained consumer spending and an easing of obstacles associated with supply chains. In further positive news for the Japanese economy, the service sector grew at a record pace. The growth in the service sector was primarily led by the increase in tourism, both foreign and domestic. Almost 2 million visitors travelled to Japan in April, setting a new post-pandemic high. Investors should know these are promising signs for Japanese recovery, and if trends continue, Japan is expected to continue its growth throughout 2023.

U.K. April CPI

The U.K. consumer price index rose by 8.7% in April, down 1.4% from March levels. Although energy price inflation came in high at 12.3%, it continued to drop, down from 26.1% in March. However, food price inflation remained stubborn, as prices rose 19.1% year over year, a 45-year high. Excluding energy and food prices, core inflation was 6.8%, a 31-year high. With inflation remaining an issue for British consumers and recent incorrect predictions coming from the Bank of England (BOE), criticism towards the bank’s policies are becoming more common. Investors should know that an increase in interest rates is likely as the BOE seeks to get inflation under control.

Weekly Unemployment

Initial and continuing claims for the latest week came in below economists’ expectations. Initial claims for this week came in just higher than last week’s report. The labor market is expected to further loosen during the second quarter as companies respond to slowing demand triggered, in part, by the Fed’s tighter monetary policy.

Week Ahead

The following economic data is slated for the week ahead:

Tuesday: FHFA Home Price Index (Mar), S&P/Case-Shiller Comp Home Price Index (Mar), Consumer Confidence (May)
Wednesday: JOLTS Job Openings (Apr)
Thursday: Weekly Initial and Continuing Unemployment Claims, ADP Employment Survey (May), Unit Labor Costs (Q1), Productivity (Q1), S&P Global PMI Manufacturing (May), Construction Spending (Apr), ISM Manufacturing (May)
Friday: Hourly Earnings (May), Average Workweek (May), Manufacturing Payrolls (May), Nonfarm Payrolls (May), Private Nonfarm Payrolls (May), Unemployment Report (May)



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