The Week in Review 8/14/2023

"If you don't have time to do it right, when will you ever have time to do it over?" - John Wooden

The Dow Jones Industrial Average was the only winner last week… the S&P 500, Nasdaq, and Russell 2000 all had modest losses. Trading last week reflected a corrective mindset that has taken root in August after a handsome run for the stock market since late March.

The S&P 500 did close below the 4,500 support level on Friday.

Volume on the NYSE was below average… ushering us into the “dog days of summer”.

There were several news bits that gave market participants an excuse to take money off the table this week…

Global growth concerns were fueled by weaker-than-expected trade data out of China, and much weaker than expected new yuan loan growth for July, along with a warning from Chinese property developer Country Garden Holdings that it anticipates losing nearly $8 billion in the first half of 2023.

Also, a slate of U.S. economic data came in mixed.

Total CPI and core-CPI were both in line with consensus estimates while the Producer Price Index for July was hotter than expected at the headline level, but not really too hot after accounting for downward revisions for June. Initial jobless claims, meanwhile, continue to run well below recession levels.

Shelter continues to be the main contributor, accounting for 90% of July’s total increase. Shelter’s annual rate remains very high at 7.7%, which is more than double the pre-pandemic rate.

If you strip out shelter from the index, that 3.2% rate falls to just 1.0%

Earlier in the week, Moody's downgraded the credit ratings of 10 smaller U.S. banks and put some bigger banks on watch for a downgrade, this also added to the pessimism in the markets.

On the earnings front… Dow component Walt Disney was a winning standout, jumping 3.2% on the week after reporting results, while UPS sank after it issuing disappointing FY23 revenue outlook, citing weakening e-commerce demand and an expectation for lower volumes following the improved labor contract for the lowered guidance.

The S&P 500 energy (+3.5%) and health care (+2.5%) sectors led the outperformers while the information technology sector (-2.9%) saw the largest decline.

Treasury yields continued to climb last week, acting as another “thorn in the side” for equities. The 2-yr note yield rose 11 basis points to 4.89% and the 10-yr note yield rose nine basis points to 4.17%.

Market Snapshot…

• Oil Prices – Oil prices are up on record demand. West Texas Intermediate crude (WTI) gained 22 cents, or 0.27%, to settle at $83.05/barrel. Brent crude futures rose 19 cents, or 0.22%, to settle at $86.59/barrel.
• Gold– Gold prices are on track for their worst week in seven, hurt by an overall stronger dollar. Spot Gold rose just 0.05% to $1,912.9246 per ounce. U.S. gold futures inched down 0.18% to $1,945.4. Silver finished the week at $22.748.
• U.S. Dollar– The dollar rose after a slightly bigger increase in U.S. producer prices in July lifted Treasury yields higher. The dollar index rose 0.31% to 102.85, after bouncing off a 15-month low in mid-July on signs of a resilient U.S. labor market. Euro/US$ exchange rate is now 1.091.
• U.S. Treasury Rates– The yield on the 10-year Treasury increased after producer prices were better than expected. The 10-year Treasury yield added nearly 8 basis points to 4.16%.
• Asian shares were down in overnight trading.
• European markets are trading mostly higher.
• Domestic markets are indicated modestly higher this morning.

Earnings are better than feared…Roughly 92% of the S&P 500 has reported earnings thus far. In aggregate, those companies continue to exceed analyst expectations with 82% reporting above estimates. The better-than-feared mentality has helped push stocks higher.

Earnings season is nearing its end but there are still a few prominent companies left to report. This week we will hear from Home Depot, Cisco, Walmart, and Deere to name a few.

This week will be relatively light. The retail sales report will be announced on Tuesday, and the Fed’s meeting minutes from its July meeting will be released.

Have a wonderful week!

The opinions expressed herein are those of Michael Hilger and not necessarily those of Raymond James & Associates, Inc., and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

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