MARKET RECAP

After a big June where US stocks advanced by  6.73%, stocks were flat this week, +0.01%, while international markets fell slightly, down by 0.36%. Bond took a big loss of 0.96% on higher interest rates. The yield on the 1-year treasury was up by 24 basis points.

The market no longer anticipates a drop in interest rates this year and is counting on a rate increase at the next meeting in late July. Despite falling just shy of the consensus for nonfarm payrolls, the payroll report that came out this week still reflected a solid labor market, thereby putting to rest the chance for a near-term pause in interest rate increases. Payrolls increased by 209,000; the estimate was 230,000. It was the first miss after a 14-month winning streak. The two prior months were revised down by 110,000. The workweek was up to 34.4 hours from 34.3 in May, and average hourly earnings were up by 0.4%. The unemployment rate fell to 3.6% from 3.7%.

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SCOREBOARD 6/16/2023

MARKET RECAP

US stocks had a breakout week, up by 3.43% and moving up through resistance. Despite all the bad news out there, stocks continue to push higher.

Washington managed to make a deal to save the country from default. Of course, according to Bloomberg economists Anna Wong and Maeva Cousin, it will barely make a dent in the continued disastrous trajectory of US debt, estimated to rise from 97% of GDP to 130% by 2033.

Biden signed the debt deal into law on Saturday, meaning a tidal wave of US Treasuries will come to market this week. It will be interesting to see how the market handles it.

Non-farm payrolls were up by 339,000, beating the 195,000 consensus. Bianco Research said it was the 14th consecutive monthly reading in which payrolls topped economist expectations. The prior two months were revised up by almost 100,000. The labor-force participation rate was 62.6%, the same as in May and lower than the prepandemic level of 63.3%. The average workweek fell to 34.3 hours, the lowest since April 2020.

Between the strong jobs report and the debt ceiling resolution, the Dow jumped by just over 700 points on the news, the largest one-day gain since November.

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MARKET RECAP

• US stocks +1.70%, international +0.65%, bonds -1.32%.
• The market continues up despite all the bad news and the consensus that it should go down.
• Tech stocks are flying especially if they are connected to AI.
• The Leading Economic Indicators (LEI) have now fallen for 13 straight months.
• The debt ceiling is still not fixed with time running out.
• BofA’s global fund survey shows managers expect a soft landing.

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MARKET RECAP

• US stocks fell by 0.23%, barely budging despite no debt limit deal with about two weeks remaining.
• The S&P 500 moved less than 1% in either direction in the sixth week in a row.
• One-month t-bills were yielding 5.79% due to the risk of default.
• Biden has an approval rating of 37%, the lowest since Truman’s second term. This, despite a 3.4% unemployment rate.
• Jonathan Golub, chief US equity strategist at Credit Suisse, says the S&P 500 has returned 16.9% on average in the 12 months following the last interest rate hike of a cycle.
• But there are still lots of negatives – the probability of default; inflation is still high, more potential problems in the banking system, high p/e ratio in the market, and negative earnings growth.
• CPI declined for the 10th straight month (4.9% YoY), and PPI is increasing at its slowest rate since 2021.
• Discretionary investors are underweight stocks, in the 9th percentile historically, providing possible fuel if the market starts moving higher.

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MARKET RECAP

US stocks fell by 0.78%, while international stocks managed an advance of 0.48%.

The US added 253,000 jobs in April, indicating that the labor market continues to be solid, despite rising rates and the banking crisis. It was the best gain since January. The unemployment rate fell to 3.4%. Wages were up by 4.4% year over year.

During the week, the Fed raised its benchmark interest rate by one-quarter point to between 5% and 5.25%. Powell indicated the Fed might pause hikes until they have a better understanding of the impact of all of the recent increases. But the strong labor report might change that calculation.

Banking continues to be an area of concern. The SPDR Regional Banking ETF, KRE, fell by 10% on the week.

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HIGHLIGHTS

• S&P 500 +0.87%
• Despite a rally this year, less than 1/3 of the stocks in the S&P 500 have outperformed the index.
• Apple and Microsoft make up 14% of the S&P 500.
• The S&P trades at 18x next year’s earnings versus a 16.9x five-year average (for the period ending 2019), and interest rates are much higher now.
• The average recession drops EPS by 31%.
• The debt ceiling crisis is still out there and will have to be dealt with soon.

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