Market Update—Week of June 12, 2023

Market Update—Week of June 12, 2023

June 12, 2023

Quick Hits

  1. Report releases: Service sector confidence sours in May
  2. Financial market data: The S&P 500 is more than 20 percent above its 52-week low
  3. Looking ahead: The Federal Open Market Committee (FOMC) will meet for its June decision

Report Releases: June 5–9, 2023

ISM Services, May (Monday)

Service sector confidence dropped more than expected in May, as the index dropped to its lowest point so far this year. Despite the slide in sentiment, the index remained in expansionary territory.

  • Expected/prior ISM Services index: 52.4/51.9
  • Actual ISM Services index: 50.3

MBA Mortgage Applications (Wednesday)

Weekly mortgage applications fell 1.4 percent since the same period last year. While it’s still a drop, there was improvement compared to the 3.7 percent drop the week prior.

Consumer Credit, April (Wednesday)

Consumer credit came in slightly higher than last month, which was revised down from $26.514 billion to $22.837 billion in March. The story here was the downward revision as spending appears to be lower than initially thought. We’ll look to next month to see if the trend remains flat or moves down.

  • Expected/prior consumer credit levels: $22.538 B/$26.514B
  • Actual consumer credit level: $23.010B

International Trade Report, April (Wednesday)

The trade deficit widened slightly more than anticipated in April as a sharp drop in exports brought the trade gap to its largest level in six months.

  • Expected/prior trade deficit: –$74.6B/–$60.6B
  • Actual trade deficit: –$75.8 billion

The Takeaway

  • The service sector moved close to the edge of contractionary territory with the most recent report
  • Consumer credit was revised down, indicating a tightening of personal spending

Financial Market Data

Equity

IndexWeek-to-DateMonth-to-DateYear-to-Date12-Month
S&P 5000.41%2.89%12.82%8.86%
Nasdaq Composite0.15%2.53%27.20%13.82%
DJIA0.36%3.00%3.26%7.26%
MSCI EAFE0.64%3.42%10.46%8.96%
MSCI Emerging Markets1.89%4.67%5.77%-3.34%
Russell 20001.92%6.67%6.63%2.37%

Source: Bloomberg, as of June 9, 2023

The S&P 500 posted its fourth straight weekly gain and the Nasdaq posted its seventh. The market has continued its rally with the prospect of falling inflation and a potential reacceleration of economic growth. The FOMC will meet on Tuesday and Wednesday to update its rate policy and outlook. If the Federal Reserve (Fed) indicates additional hikes are needed, the decision could take the wind out of the sails of the recent rally. Top-performing sectors last week were consumer discretionary, utilities, energy, and industrials. Technology, consumer staples, and communication services lagged.

Fixed Income

IndexMonth-to-DateYear-to-Date12-Month
U.S. Broad Market-0.44%2.01%-0.68%
U.S. Treasury-0.54%1.80%-1.13%
U.S. Mortgages-0.32%1.97%-0.95%
Municipal Bond0.47%2.13%1.79%

Source: Bloomberg, as of June 9, 2023

The move in U.S. Treasuries has been more muted as of late, with the Fed expected to skip a change in rate levels at the June meeting. The front end of the curve extended its move downward as the 1-month yield fell 7 basis points (bps) and the 3-month fell 12 bps. The 10-year moved 5 bps higher and the
30-year remained flat.

The Takeaway

  • Stocks continued their move higher as the Fed has given equities very little to change their tune
  • The front end of the curve continues to rally as confidence in Treasuries and profit leads to additional interest

Looking Ahead

This week will be full of important economic data and events, including inflationar data, the June FOMC decision, and retail sales all due out.

  • The week will kick off on Tuesday with the Consumer Price Index report for May. Headline and core consumer prices are both set to show slowing year-over-year inflation in May, with headline inflation set to fall to 4.1 percent for the year.
  • Wednesday will be busy with the release of May’s Producer Price Index report and the conclusion of the June FOMC meeting. Producer prices are also expected to fall in May, with headline prices set to rise at a 1.5 percent year-over-year rate. Most investors and economists expect no changes to the federal funds rate at this FOMC meeting.
  • On Thursday, the retail sales report for May will be released. Core retail sales are set to rise in May, which would mark two consecutive months with sales growth.


Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

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Authored by the Investment Research team at Commonwealth Financial Network.

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