US equity markets were closed Monday in observation of the Juneteenth holiday and decidedly broke their recent upward streak (five weeks for the S&P 500 and eight weeks for the Nasdaq). Overall, a relatively quiet week ensued, as investors digested the reality of a longer hawkish Fed policy. The S&P 500 was down -1.39%, the Dow Jones fell -1.67%, and the NASDAQ retreated -1.44%. Bonds were relatively flat, with curves flattening and pushing the Agg up 0.12%. Alternatives continued to be mixed, with Bitcoin futures up 17.68%, gold down -2.11%, silver down -7.34%, and oil fell -3.85%.
Last week was muted on the economic indicator front. Tuesday saw Housing Starts SAAR (Seasonally Adjusted Annual Rate) print at 1,631K, which was a strong uptick from the prior print of 1,340K. This was in line with a much better. Homebuilder Sentiment than expected from Monday. Wednesday brought “Fedspeak” from Fed Chairman Powell, Governor Cook, and Governor Jefferson before Congress, where they largely reiterated the higher-for-longer interest rate narrative and affirmed their view of the Fed’s Dot plot to include two further rate hikes. Jobless claims held steady at 264k initial claims, while Continuing jobless claims saw a small downward shift. Friday finished the week with Markit Purchasing Manager Index’s printing where manufacturing saw a downward surprise and services held roughly the same.
In the week ahead, we will see Durable Orders SA M/M (Seasonally Adjusted, Month/Month), which are expected to decrease to -0.95% and the S&P/Case-Shiller Housing Price Index, which is expected to hold flat at 0.50%. Wholesale Inventories SA M/M print on Wednesday are expected to stay at -0.10%. Initial Jobless Claims this week are expected to remain at 264K on Thursday. Friday ends the quarter bringing Personal Consumption Expenditure (PCE) with the PCE deflator, a measure of inflation, expected to print 0.35% M/M for core and 0.10% M/M for headline. These prints would indicate dis-inflation continuing.
On the inflation narrative, personal auto insurance is seeing rates rising faster than other areas, as the cost of both repairs and replacements for auto has made underwriting more expensive. Further, we are watching commercial real estate, particularly office space, as concerns of a market correction in the space continue. A market correction could also have a ripple effect, including shopping malls and restaurants, as a post-COVID world turns more remote and hybrid. With this week wrapping up Q2 2023, July will bring earnings season and another chance to develop economic outlooks by drawing on individual company insights.
In geopolitical events, the war in Ukraine saw a possible catalyst for change, as Russia experienced an attempted military coup. Yevgeny Prigozhin, Wagner’s Private Military Company chief, made it within 125 miles of Moscow on Saturday looking to oust Defense Minister Sergei Shoigu and the Chief of the General Staff, Valery Gerasimov. Sunday saw the incursion end on what could have caused a civil war. Prigozhin was exiled to Belarus, while Wagner troops were granted immunity in exchange for ending the conflict.
As we head into quarter end and the Fourth of July holiday, we expect quarter-end flows to impact markets, while the potential fallout of the attempted Russian coup is digested by markets. As we celebrate liberty this holiday weekend, it is especially important to ensure that we use it wisely. “So Christ has truly set us free. Now make sure that you stay free, and don’t get tied up again in slavery to the law” (Galatians 5:1).
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