Gearing Up for Changes Ahead

Last week ended the second quarter of 2023 and led us into the Fourth of July weekend. This past week, economic indicators drove markets, while Supreme Court decisions drove headlines. The S&P 500 was up 2.35%, the Dow Jones rose 1.17%, and the NASDAQ gained 2.19%. Long-term interest rates climbed higher on bullish, “soft-landing” economic data, and the Agg fell -0.32%. Alternatives continued to be mixed, with Bitcoin futures down -3.20%, gold down -0.61%, silver up 1.99%, and oil rising 1.01%.

Last week saw several economic data prints containing strong surprises. Tuesday brought durable goods orders higher than estimates (SA, M/M) at 1.7% vs a -0.95% estimate, and new homes sales well above estimates(SAAR) came in at 763K vs a 93K estimate.  Both datapoints support the idea consumers still have an appetite for real goods and, consequently, bolster the potential for a soft landing. Wednesday brought wholesale inventories (SA M/M), which were in line with expectations, at -0.10%. Thursday saw first quarter GDP release with a strong +.7% surprise upward to GDP SA Y/Y coming in at 2.0%. Continuing and initial jobless claims came slightly below expectations last week.

Last week saw the end of the Supreme Court’s term and the release of several highly anticipated opinions. On Friday, the court struck down the Administration’s student loan forgiveness plan.  Interest will resume accruing in September and payments will restart in October. Economic estimates anticipate that this ruling may result in a lowering of CPI by 0.2% over the next year. The court also sided with freedom of speech and ruled in favor of a designer that opposed creating a same-sex wedding website based on religious grounds.

In geopolitical events, France saw the outbreak of violent rioting in response to the police killing of a black teenager, as he drove away to escape after being stopped for driving in a bus lane. The tragedy, one of 13 such incidents within the last year in France, has spurred a strong response over concerns of systematic racism and police violence. In Russia, the fallout from last week’s failed coup by Wagner PMC leader Yevgeny Prigozhi has led to reported widescale purges in the Russian military. China launched an anti-espionage law on Saturday that gives its government broad powers to act is response to any action it deems to threaten Chinese sovereignty, security, interests, etc. This, of course, is causing concerns for western businesses operating in China and is seen as a response to western sanctions.

This week, the biggest news is Fed Minutes from the June FOMC meeting releasing Wednesday to welcome markets back after the Fourth of July. Eyes will be watching to see convictions on interest rate policy going forward and how the Fed is weighing different economic factors. Thursday brings the ADP employment survey (SA) and JOLTS job openings, which will help appraise the state of employment. Friday will end the week on payrolls and jobs continuations with Hourly Earnings data releasing, as well as payrolls data. We are hopeful that the employment data will help illuminate what direction businesses are heading and provide insights into expectations for that fast-approaching Q2 earnings season.

With the quarter ended and the 4th of July holiday weekend behind us, now is a time to reflect on the good, the bad, and the ugly of the first six months of 2023. There certainly has been a little bit of all three, but the broader markets remain pointed in the right direction.  As we move towards earnings season and integrate recent geo-political impacts into our decision-making process, we look forward to incorporating changes that should position portfolios well for the remaining two quarters of the year. The changes overseas, in the courts, and in the markets will undoubtedly have momentary impact on all of our lives.  Such changes, however, should never be the basis for our overarching philosophy, for the Lord reminds us: “Behold, I will create new heavens and a new earth. The former things will not be remembered, nor will they come to mind” (Isaiah 65:17).

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