Dumaine Investments Weekly Market Update – July 12, 2023
• After starting the quarter in a wait-and-see mode, US stocks dipped last week in the wake of a sharp spike in ADP’s reported employment data which was well ahead of expectations, presumably on the belief that this info would alarm the data-driven Fed and increase the probability of additional rate hikes. In a confusing twist, nonfarm payrolls data released a day after the ADP report were below market forecasts, leading the market to close the week on an uptick.
• This week has been marked by more mixed economic data. While the Institute of Supply Management’s services reading was ahead of forecasts, the Labor Department’s jobs opening report was below projections. Additionally, headline inflation came in at 3.0%, basically in-line with forecasts. Not surprisingly, the markets responded favorably, and were around 1% as of this writing. Nevertheless, the Fed remains committed to its 2% inflation target. As has been mentioned by several prominent analysts, the ‘last mile’ can be the hardest when taming inflation. Moreover, a large portion of the recent reduction in inflation has come from falling energy prices while core inflation has remained stubbornly high at 4.8%.
• At the industry level, energy stocks led gainers over the past week as crude oil hit a two-month high due to recent production cuts by Russia and Saudi Arabia. Industrials and financials also rallied after lagging the broader market in the year’s first half. After a torrid start to 2023, mega-cap tech stocks have been flat-to-down so far in July as investors appear to be taking a wait-and-see approach.
• In the days ahead, all eyes will be on Producer Price Index data, preliminary consumer sentiment numbers, and the now-starting corporate earnings season prior to the Fed’s July 25 rate setting meeting. As of today, consensus remains that the Fed will increase rates by 0.25 percentage points in July as the FedWatch tool shows a 95% probability of a rate hike.
DISCLAIMER: The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Investment decisions should be based on individual financial goals, risk tolerance, and consultation with a qualified financial professional.