US equities were mostly higher this week with the S&P 500 posting its fourth weekly gain in the past five weeks (and eighth in the past 10 weeks) and the Dow capping off a 10th straight gain on Friday, though Nasdaq Compositewas modestly lower on the week. The small-cap Russell 2000 and S&P600 also outperformed the S&P 500 for a second-straight week. Some of the week’s outperformers included cyclicals like banks, investment banks, insurance, machinery, machinery, electricals/multis, restaurants, hotels, cruiselines, tech hardware, and chemicals. Some defensives and flight-to-safety groups also outperformed, including food and beverage, discount retailers, grocery, pharma, managed care, utilities, and real estate. Underperformers included big tech, semis, entertainment, homebuilders, autos, casinos. Treasuries were mostly weaker with the curve flattening. The dollar index was up 1.2% (though still down around 1.8% MTD). Gold was up 0.1%. Bitcoin futures were down 0.5%. WTI crude was up 2.2%, finishing the week at the highest level since mid-April.
There were a number of moving pieces this week. Several high-profile earnings disappointments (TSLA -7.6%, NFLX -3.3%) weighed on sentiment in the back half of the week, adding more scrutiny around big tech valuations and the high bar following outsized YTD gains. Overbought conditions and extended sentiment were also seen in the latest AAII survey, which had more bulls than bears for a seventh-straight week, the longest since Jul-21. Short-covering tailwinds may also be fading after last week saw the largest short covering since Nov-22. Dampened pricing power was also in focus after F -7% announced F-150 Lightning price cuts. There were also a few cautious takeaways from some of the week’s earnings, including the potential impact of deflation on earnings, freight recession, macro uncertainty, and destocking pressures (particularly in semis/electronics).
However, there was also some optimism around a broadening of the market rally, particularly in industrial cyclicals and banks, amid more disinflation and soft landing optimism. Earnings revisions and guidance are also seen as another bullish talking point, while positive themes from earnings include consumer resilience, benign credit, deposit stabilization, robust travel demand, housing demand, and more signs of disinflation. Despite the big Nasdaq outperformance, analysts also noted Nasdaq has still underperformed historical averages coming out of bear markets. Liquidity fears continued to fade with the TGA rebuild nearly complete. And while the Fed’s higher-for-longer stance is likely to be reinforced at next week’s July FOMC meeting, economists see this as the last hike, adding support around the peak-Fed theme.
Data this week also offered more soft landing support. June headline retail sales were a bit softer and May was revised higher, though control group sales were hotter than expected in the latest signal around consumer resilience. July builder confidence also rose for a seventh-straight month to the highest level since June of last year. June housing starts and permits both came in below consensus, though analysts noted some demand signaling from single family starts still near the highest pace in a year and single family permits the highest since Jun-22. Initial jobless claims came in at 228K, below consensus for 241K and the lowest weekly reading since May.
A busy calendar next week, with the July FOMC meeting being the big macro event. Officials are almost certain to hike by 25 bp, with thorough debate on whether there is one after July or not. Street economists expect this to be the last hike before pivoting to rate cuts in early 2024. Data next week include July Markit Flash PMI (Monday), July Consumer Confidence (Tuesday), June new home sales (Wednesday), June durable goods (Thursday), and June PCE (Friday). Key earnings reports next week include Microsoft, Alphabet, GM, and Visa (Tuesday); Meta, Coca Cola, AT&T (Wednesday); McDonald’s Mastercard, Southwest, Ford Motor (Thursday); and Exxon, Chevron, Procter & Gamble (Friday).
The Baker Hughes rig count was down 6 this week. There are 669 oil and gas rigs operating in the US – Down 89 from last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims– Released Thursday 7/20/2023 –In the week ending July 15, the advance figure for seasonally adjusted initial claims was 228,000, decreasing 9,000 from the previous week’s revised level. The 4-week moving average was 237,500 a decrease of 9,250 from the previous week’s revised average.
June Jobs Report – BLS Summary– Released 7/7/2023 – The US Economyadded 209k nonfarm jobs in June and the Unemployment rate was little changed at 3.6%. Average hourly earnings increased 12 cents to $33.58. Hiring highlights include +21k Leisure and Hospitality, +23k Construction, +73k Education and Health Services, +60 Government, and +21k Professional and Business Services.
Average hourly earnings increased 12 cents/0.4% to $33.58.
U3 unemployment rate decreased 0.1% to 3.6%. U6 unemployment rate increased 0.2% to 6.9%.
The labor force participation rate was unchanged at 62.6%.
Average work week increased 0.1 hours to 34.4 hours.
Job Openings & Labor Turnover Survey JOLTS – Released 7/6/2023 – The number of job openings decreased to 9.8 million on the last business day of May, the U.S. Bureau of Labor Statistics reported. Over the month the number of hires and total separations changed little at 6.2 million and 5.9 million, respectively. Within separations, quits (4.0 million) increased and discharges (1.6 million) changed little.
Employment Cost Index –Released 4/28/2023 – Compensation costs for civilian workers increased 1.2% for the 3-month period ending in March 2023. The 12-month period ending in March 2023 saw compensation costs increase by 4.8. The 12-month period ending March 2022 increased 4.5%. Wages and salaries increased 5.0 percent over the 12-month March 2023 and increased 4.7 percent for the 12-month period ending in March 2022. Benefit costs increased 4.5 percent over the 12-month period ending March 2023 and increased 4.1 percent for the 12-month period ending in March 2022. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
Existing Home SalesReleased 7/20/2023 – June 2023 brought 4.16 million in sales, a decrease of 3.3% from May. The median sales price was $410,200. The current unsold housing inventory was 3.1 months of inventory.
Housing Starts–Released 7/19/2023– June housing starts came in at 1,434,000, 8.0% below the May estimate and 8.1% below the June 2022 rate. Building permits were 3.7% below the May rate at $1,440,000 and 15.3% below the June 2022 rate.
Industrial Production and Capacity UtilizationReleased 7/18/2023 – Industrial production decreased 0.5% in June for the second consecutive month. Utilities output fell 2.6%. Manufacturing decreased 0.3%. Mining fell 0.2%. Capacity utilization declined to 78.9% in June, 0.8% below the long-run average.
Retail Sales– Released 7/18/2023 – Headline retail sales increased 0.2% in June and are up 1.5% above June 2022.
Recent Economic Data
Links take you to the data source
Producer Price Index– Released 7/13/2023– The Producer Price Index for final demand increased 0.1 percent in June, seasonally adjusted. Final demand prices declined 0.4 percent in May and increased 0.1 in April. On an unadjusted basis, the index for final demand moved up 0.1 percent for the 12 months ended in June.
Consumer Price Index –Released 7/12/2023– The Consumer Price Index for All Urban Consumers rose 0.2 percent in June on a seasonally adjusted basis, after increasing 0.1 percent in May. Over the last 12 months, the all items index increased 3.0 percent before seasonal adjustment.
Consumer Credit– Released 7/10/2023– Consumer credit increased at a seasonally adjusted annual rate of 1.8 percent in May. Revolving credit increased at an annual rate of 8.2 percent, while nonrevolving credit increased at an annual rate of 0.4 percent.
U.S. Trade Balance– Released 7/6/2023 – The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $69.0 billion in May, down $5.5 billion from $74.4 billion in April. May exports were $247.1 billion, $2.1 billion less than April exports. May imports were $316.1 billion, $7.5 billion less than April imports. The May decrease in the goods and services deficit reflected a decrease in the goods deficit of $4.8 billion to $91.3 billion and an increase in the services surplus of $0.7 billion to $22.3 billion.
PMI Non-Manufacturing Index–Released 7/5/2023 – Economic activity in the services sector expanded in June for the sixth consecutive month as the Services PMI® registered 53.9 percent, 3.6 percentage point higher than May’s reading of 50.3 percent.
U.S. Construction Spending– Released 7/3/2023 – Construction spending during May 2023 was estimated at a seasonally adjusted annual rate of $1,925.6 billion, 0.9 percent above the revised April estimate of $1,909.0 billion. The May figure is 2.4 percent above the May 2022 estimate of $1,880.9 billion.
PMI Manufacturing Index –Released 7/3/2023 – The June Manufacturing PMI registered 46.0 percent, 0.9 percentage points lower than the 46.9 percent recorded in May. Regarding the overall economy, this figure indicates a seventh month of contraction after a 30-month period of expansion. The New Orders Index remained in contraction territory at 45.6 percent, 3.0 percentage points higher than the figure of 42.6 percent recorded in May. The Production Index reading of 46.7 percent is a 4.4-percentage point decrease compared to May’s figure of 51.1 percent.
US Light Vehicle Sales– Released 6/30/2023 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.058 million units in May.
Chicago PMI– Released 6/30/2023 – Chicago PMI remained in contraction territory in June increasing to 41.5 points up from 40.4 points in May. This marks ten months in contractionary territory.
Personal Income –Released 6/30/2023 – Personal income increased $91.2 billion (0.4 percent at a monthly rate) in May. Disposable personal income (DPI) increased $86.7 billion (0.4 percent). Personal consumption expenditures (PCE) increased $18.9 billion (0.1 percent).
3rd Estimate of 1st Quarter 2023 GDP – Released 6/29/2023 – Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the first quarter of 2023, according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6 percent. The “third” GDP estimate is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 1.3 percent. The updated estimates primarily reflected upward revisions to exports and consumer spending that were partly offset by downward revisions to nonresidential fixed investment and federal government spending. Imports, which are a subtraction in the calculation of GDP, were revised down. The increase in real GDP in the first quarter reflected increases in consumer spending, exports, state and local government spending, federal government spending, and nonresidential fixed investment that were partly offset by decreases in private inventory investment and residential fixed investment. Imports increased.
Durable GoodsReleased 6/27/2023 – New orders for manufactured durable goods in May, up three consecutive months, increased $4.9 billion or 1.7 percent to $288.2 billion, the U.S. Census Bureau announced today. This followed a 1.2 percent April increase. Excluding transportation, new orders increased 0.6 percent. Excluding defense, new orders increased 3.0 percent. Transportation equipment, also up three consecutive months, drove the increase, $3.9 billion or 3.9 percent to $102.6 billion.
Consumer Confidence– Released 6/27/2023 – Consumer Confidence increased in June to 109.7, up from 102.5 in May. Consumer confidence improved in June to its highest level since January 2022, reflecting improved current conditions and an improvement in expectations.
New Residential SalesReleased 6/26/2023 – Sales of new single‐family houses in May 2023 were at a seasonally adjusted annual rate of 763,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.2 percent above the revised April rate of 680,000 and is 20.0 percent above the May 2022 estimate of 636,000. The median sales price of new houses sold in May 2023 was $416,300. The average sales price was $487,300. At the end of May, the seasonally adjusted estimate of new homes for sale was 428,000, a supply of 6.7 months at the current sales rate.
Next week we get data on New Residential Sales, Consumer Confidence, Durable Goods, the Advance Estimate of 2nd Quarter GDP, and Personal Income.
Table of Contents
Good Life Advisors – Talking Points – Week 29
US equities were mostly higher this week with the S&P 500 posting its fourth weekly gain in the past five weeks (and eighth in the past 10 weeks) and the Dow capping off a 10th straight gain on Friday, though Nasdaq Compositewas modestly lower on the week. The small-cap Russell 2000 and S&P600 also outperformed the S&P 500 for a second-straight week. Some of the week’s outperformers included cyclicals like banks, investment banks, insurance, machinery, machinery, electricals/multis, restaurants, hotels, cruiselines, tech hardware, and chemicals. Some defensives and flight-to-safety groups also outperformed, including food and beverage, discount retailers, grocery, pharma, managed care, utilities, and real estate. Underperformers included big tech, semis, entertainment, homebuilders, autos, casinos. Treasuries were mostly weaker with the curve flattening. The dollar index was up 1.2% (though still down around 1.8% MTD). Gold was up 0.1%. Bitcoin futures were down 0.5%. WTI crude was up 2.2%, finishing the week at the highest level since mid-April.
There were a number of moving pieces this week. Several high-profile earnings disappointments (TSLA -7.6%, NFLX -3.3%) weighed on sentiment in the back half of the week, adding more scrutiny around big tech valuations and the high bar following outsized YTD gains. Overbought conditions and extended sentiment were also seen in the latest AAII survey, which had more bulls than bears for a seventh-straight week, the longest since Jul-21. Short-covering tailwinds may also be fading after last week saw the largest short covering since Nov-22. Dampened pricing power was also in focus after F -7% announced F-150 Lightning price cuts. There were also a few cautious takeaways from some of the week’s earnings, including the potential impact of deflation on earnings, freight recession, macro uncertainty, and destocking pressures (particularly in semis/electronics).
However, there was also some optimism around a broadening of the market rally, particularly in industrial cyclicals and banks, amid more disinflation and soft landing optimism. Earnings revisions and guidance are also seen as another bullish talking point, while positive themes from earnings include consumer resilience, benign credit, deposit stabilization, robust travel demand, housing demand, and more signs of disinflation. Despite the big Nasdaq outperformance, analysts also noted Nasdaq has still underperformed historical averages coming out of bear markets. Liquidity fears continued to fade with the TGA rebuild nearly complete. And while the Fed’s higher-for-longer stance is likely to be reinforced at next week’s July FOMC meeting, economists see this as the last hike, adding support around the peak-Fed theme.
Data this week also offered more soft landing support. June headline retail sales were a bit softer and May was revised higher, though control group sales were hotter than expected in the latest signal around consumer resilience. July builder confidence also rose for a seventh-straight month to the highest level since June of last year. June housing starts and permits both came in below consensus, though analysts noted some demand signaling from single family starts still near the highest pace in a year and single family permits the highest since Jun-22. Initial jobless claims came in at 228K, below consensus for 241K and the lowest weekly reading since May.
A busy calendar next week, with the July FOMC meeting being the big macro event. Officials are almost certain to hike by 25 bp, with thorough debate on whether there is one after July or not. Street economists expect this to be the last hike before pivoting to rate cuts in early 2024. Data next week include July Markit Flash PMI (Monday), July Consumer Confidence (Tuesday), June new home sales (Wednesday), June durable goods (Thursday), and June PCE (Friday). Key earnings reports next week include Microsoft, Alphabet, GM, and Visa (Tuesday); Meta, Coca Cola, AT&T (Wednesday); McDonald’s Mastercard, Southwest, Ford Motor (Thursday); and Exxon, Chevron, Procter & Gamble (Friday).
Fixed Income
Yield Curve
May FOMC Statement March Fed Minutes Balance Sheet Reduction Plan Credit, Liquidity and Balance Sheet Federal Reserve Dot Plots
Treasury.gov yields FOMC Policy Normalization Statement Longer- Run Goals Jan 2022
Foreign Exchange Market
Energy Complex
The Baker Hughes rig count was down 6 this week. There are 669 oil and gas rigs operating in the US – Down 89 from last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims – Released Thursday 7/20/2023 –In the week ending July 15, the advance figure for seasonally adjusted initial claims was 228,000, decreasing 9,000 from the previous week’s revised level. The 4-week moving average was 237,500 a decrease of 9,250 from the previous week’s revised average.
June Jobs Report – BLS Summary – Released 7/7/2023 – The US Economy added 209k nonfarm jobs in June and the Unemployment rate was little changed at 3.6%. Average hourly earnings increased 12 cents to $33.58. Hiring highlights include +21k Leisure and Hospitality, +23k Construction, +73k Education and Health Services, +60 Government, and +21k Professional and Business Services.
Job Openings & Labor Turnover Survey JOLTS – Released 7/6/2023 – The number of job openings decreased to 9.8 million on the last business day of May, the U.S. Bureau of Labor Statistics reported. Over the month the number of hires and total separations changed little at 6.2 million and 5.9 million, respectively. Within separations, quits (4.0 million) increased and discharges (1.6 million) changed little.
Employment Cost Index – Released 4/28/2023 – Compensation costs for civilian workers increased 1.2% for the 3-month period ending in March 2023. The 12-month period ending in March 2023 saw compensation costs increase by 4.8. The 12-month period ending March 2022 increased 4.5%. Wages and salaries increased 5.0 percent over the 12-month March 2023 and increased 4.7 percent for the 12-month period ending in March 2022. Benefit costs increased 4.5 percent over the 12-month period ending March 2023 and increased 4.1 percent for the 12-month period ending in March 2022. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
Existing Home Sales Released 7/20/2023 – June 2023 brought 4.16 million in sales, a decrease of 3.3% from May. The median sales price was $410,200. The current unsold housing inventory was 3.1 months of inventory.
Housing Starts– Released 7/19/2023 – June housing starts came in at 1,434,000, 8.0% below the May estimate and 8.1% below the June 2022 rate. Building permits were 3.7% below the May rate at $1,440,000 and 15.3% below the June 2022 rate.
Industrial Production and Capacity Utilization Released 7/18/2023 – Industrial production decreased 0.5% in June for the second consecutive month. Utilities output fell 2.6%. Manufacturing decreased 0.3%. Mining fell 0.2%. Capacity utilization declined to 78.9% in June, 0.8% below the long-run average.
Retail Sales– Released 7/18/2023 – Headline retail sales increased 0.2% in June and are up 1.5% above June 2022.
Recent Economic Data
Links take you to the data source
Producer Price Index – Released 7/13/2023 – The Producer Price Index for final demand increased 0.1 percent in June, seasonally adjusted. Final demand prices declined 0.4 percent in May and increased 0.1 in April. On an unadjusted basis, the index for final demand moved up 0.1 percent for the 12 months ended in June.
Consumer Price Index – Released 7/12/2023 – The Consumer Price Index for All Urban Consumers rose 0.2 percent in June on a seasonally adjusted basis, after increasing 0.1 percent in May. Over the last 12 months, the all items index increased 3.0 percent before seasonal adjustment.
Consumer Credit – Released 7/10/2023 – Consumer credit increased at a seasonally adjusted annual rate of 1.8 percent in May. Revolving credit increased at an annual rate of 8.2 percent, while nonrevolving credit increased at an annual rate of 0.4 percent.
U.S. Trade Balance – Released 7/6/2023 – The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $69.0 billion in May, down $5.5 billion from $74.4 billion in April. May exports were $247.1 billion, $2.1 billion less than April exports. May imports were $316.1 billion, $7.5 billion less than April imports. The May decrease in the goods and services deficit reflected a decrease in the goods deficit of $4.8 billion to $91.3 billion and an increase in the services surplus of $0.7 billion to $22.3 billion.
PMI Non-Manufacturing Index – Released 7/5/2023 – Economic activity in the services sector expanded in June for the sixth consecutive month as the Services PMI® registered 53.9 percent, 3.6 percentage point higher than May’s reading of 50.3 percent.
U.S. Construction Spending– Released 7/3/2023 – Construction spending during May 2023 was estimated at a seasonally adjusted annual rate of $1,925.6 billion, 0.9 percent above the revised April estimate of $1,909.0 billion. The May figure is 2.4 percent above the May 2022 estimate of $1,880.9 billion.
PMI Manufacturing Index – Released 7/3/2023 – The June Manufacturing PMI registered 46.0 percent, 0.9 percentage points lower than the 46.9 percent recorded in May. Regarding the overall economy, this figure indicates a seventh month of contraction after a 30-month period of expansion. The New Orders Index remained in contraction territory at 45.6 percent, 3.0 percentage points higher than the figure of 42.6 percent recorded in May. The Production Index reading of 46.7 percent is a 4.4-percentage point decrease compared to May’s figure of 51.1 percent.
US Light Vehicle Sales– Released 6/30/2023 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.058 million units in May.
Chicago PMI– Released 6/30/2023 – Chicago PMI remained in contraction territory in June increasing to 41.5 points up from 40.4 points in May. This marks ten months in contractionary territory.
Personal Income – Released 6/30/2023 – Personal income increased $91.2 billion (0.4 percent at a monthly rate) in May. Disposable personal income (DPI) increased $86.7 billion (0.4 percent). Personal consumption expenditures (PCE) increased $18.9 billion (0.1 percent).
3rd Estimate of 1st Quarter 2023 GDP – Released 6/29/2023 – Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the first quarter of 2023, according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6 percent. The “third” GDP estimate is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 1.3 percent. The updated estimates primarily reflected upward revisions to exports and consumer spending that were partly offset by downward revisions to nonresidential fixed investment and federal government spending. Imports, which are a subtraction in the calculation of GDP, were revised down. The increase in real GDP in the first quarter reflected increases in consumer spending, exports, state and local government spending, federal government spending, and nonresidential fixed investment that were partly offset by decreases in private inventory investment and residential fixed investment. Imports increased.
Durable Goods Released 6/27/2023 – New orders for manufactured durable goods in May, up three consecutive months, increased $4.9 billion or 1.7 percent to $288.2 billion, the U.S. Census Bureau announced today. This followed a 1.2 percent April increase. Excluding transportation, new orders increased 0.6 percent. Excluding defense, new orders increased 3.0 percent. Transportation equipment, also up three consecutive months, drove the increase, $3.9 billion or 3.9 percent to $102.6 billion.
Consumer Confidence– Released 6/27/2023 – Consumer Confidence increased in June to 109.7, up from 102.5 in May. Consumer confidence improved in June to its highest level since January 2022, reflecting improved current conditions and an improvement in expectations.
New Residential Sales Released 6/26/2023 – Sales of new single‐family houses in May 2023 were at a seasonally adjusted annual rate of 763,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.2 percent above the revised April rate of 680,000 and is 20.0 percent above the May 2022 estimate of 636,000. The median sales price of new houses sold in May 2023 was $416,300. The average sales price was $487,300. At the end of May, the seasonally adjusted estimate of new homes for sale was 428,000, a supply of 6.7 months at the current sales rate.
Next week we get data on New Residential Sales, Consumer Confidence, Durable Goods, the Advance Estimate of 2nd Quarter GDP, and Personal Income.
Data Sources:
Bureau of Economic Analysis (BEA)
Congressional Budget Office (CBO)
U.S. Bureau of Labor Statistics (BLS)
Federal Reserve Economic Data (FRED Charts)
CME Fed Watch
U.S. Treasury – Yields
U.S. Census Bureau
Institute for Supply Management (ISM)
Weekly DOL Employment Data
BLS Monthly Jobs Report
JOLTS
US Energy Admin (EIA)
BLS Consumer Price Index CPI
BLS Producer Price Index PPI
Atlanta Fed GDPNOW
NY Fed Nowcast GDP
US Census Bureau Housing Starts
Consumer Credit
USCB Retail Sales
Construction Spending
Federal Reserve Dot Plots
NY Empire Index
Philadelphia Federal Reserve
P/E Ratio Data -Yardeni Research
Technical Analysis Info:
StockCharts.com – Financial Charts
Exponential vs Simple moving average
Koyfin.com
Other Links:
1973 Arab Oil Embargo
Hunt Brothers Silver
Long-Term Capital bailout
Asian Contagion
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