Market Update - June 3
by Justin J. Long CFP® on Jun 2, 2023 3:18:21 PM
Today wasn’t just a great day for the Dow! Our kids, Gage and JJ, officially graduated from fifth grade and kindergarten and we are so proud of them. We are treating the family to a happy, fun-filled weekend and hope you all find health and relaxation as the month of June starts. As promised, here are some pictures:
And now onto the weekly recap:
The stock market had a strong showing overall on this holiday-shortened week. The S&P 500, which flirted with 4,100 last week, approached 4,300 during Friday's trade, reaching 4,290 at its high of the day. Uncertainty about the debt ceiling, which had loomed over the market for weeks, finally eased after a deal was passed by both chambers of Congress. The bill now heads to President Biden for signing.
This week brought some Fed commentary that had market participants rethinking Fed policy. Early Wednesday, the CME FedWatch Tool showed a 70% probability of another 25-basis points rate hike at the June meeting in response to Cleveland Fed President Mester (not an FOMC voter) telling FT that she sees no compelling reason to pause the rate hikes in June.
Later that day, Fed Governor Jefferson (FOMC voter), who is also the nominee for Vice Chair, said he thinks that "...skipping a rate hike at the coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming" and Philadelphia Fed President Harker (2023 FOMC voter) said he thinks the Fed can "take a bit of a skip for a meeting."
In response, the probability of a 25-basis points rate hike at the June meeting plunged to 25.6%, according to the CME FedWatch Tool. Still, Fed officials continue to signal that more rate hikes may be needed.
Market participants also received a slate of labor and inflation data that helped to keep recession and rate hikes concerns at bay for the time being. The May ISM Manufacturing Index featured a drop in new orders but also a pleasant-looking deceleration in the Prices Paid Index.
The May Employment Situation Report featured a 339,000 increase in nonfarm payrolls, a moderation in year-over-year average hourly earnings growth to 4.3% from 4.4%, and a bump in the unemployment rate to 3.7% from 3.4%.
Also, weekly initial jobless claims and the April JOLTS - Job Openings Report reflected continued strength in the labor market.
Mega cap stocks had been driving a lot of the action this year, but this week saw money rotate into areas of the market that had been trailing. The Invesco S&P 500 Equal Weight ETF (RSP) rose 1.9% this week versus a 2.0% in the Vanguard Mega Cap Growth ETF (MGK).
There was also some mixed earnings news this week from retailers. Most notably, lululemon (LULU), Advance Auto (AAP), Dollar General (DG), and Macy's (M) all made outsized moves after their earnings reports.
The S&P 500 consumer discretionary (+3.3%) and real estate (+3.1%) sectors saw the biggest gains this week. Meanwhile, the utilities (+0.8%) and consumer staples (+0.3%) sectors closed with the slimmest gains.
Treasuries ended the week with gains. The 2-yr note yield fell five basis points to 4.51% and the 10-yr note yield fell 11 basis points to 3.69%.
Below are truncated summaries of daily action:
Daily Summaries
The stock market started this holiday-shortened week on a mostly softer note. Initially, the market seemed poised for a stronger showing after participants learned over the weekend that President Biden and House Speaker McCarthy reached a debt ceiling agreement. Enthusiasm quickly dissipated, though, with uncertainty about the deal passing in both chambers of Congress still weighing on sentiment.
The lingering uncertainty about the passage of the debt ceiling deal, along with ongoing concerns about the economic outlook, kept the broader market in check. Market participants received the Consumer Confidence Index for May, which fell from last month's reading and showed that expectations remain "gloomy."
Also, worries about Fed policy came into focus after Richmond Fed President Thomas Barkin (not an FOMC voter) said he has one of the higher rate forecasts on the committee and he hasn't backed off of that, according to CNBC.
Mega cap stocks, along with other growth stocks, were a big source of support and helped to drive the relative outperformance of the S&P 500 and Nasdaq. The S&P 500 was able to maintain a position above 4,200 on a closing basis after slipping below that level a few times today.
Reviewing Tuesday's economic data:
- The FHFA Housing Price Index rose by 0.6% in March from a revised 0.7% increase in February (from 0.5%)
- The S&P Case-Shiller Home Price Index declined 1.1% in March (Briefing.com consensus -2.3%) following a 0.4% increase in February
- The Conference Board's Consumer Confidence Index dipped to 102.3 in May (Briefing.com consensus 99.5) from an upwardly revised 103.7 (from 101.3) in April. In the same period a year ago, the index stood at 103.2.
- The key takeaway from the report is that expectations remain "gloomy," which incorporates a notable worsening in the outlook in May among consumers over 55 years of age.
The stock market closed out the last day of the month on a downbeat note. Uncertainty about the passage of the debt ceiling deal is still looming, yet concerns about growth and Fed policy drove a lot of the action on Wednesday. The major indices spent most of the day trading in a fairly narrow ranges near their worst levels of the session.
The market started to climb off session lows, though, as investors recalibrated the likelihood of a rate hike at the June FOMC meeting. This was in response to some less-hawkish commentary from a few Fed officials on the heels of Cleveland Fed President Mester (not an FOMC voter) telling FT that she sees no compelling reason to pause the rate hikes.
Fed Governor Jefferson (FOMC voter) said he thinks that "...skipping a rate hike at the coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming" and Philadelphia Fed President Harker (2023 FOMC voter) said he thinks the Fed can "take a bit of a skip for a meeting."
Despite the afternoon improvement, the major indices all turned lower ahead of the close after the S&P 500 found some resistance on a retest of its early session high. Concerns about global growth, which had been the biggest factor driving early weakness, remained in play.
Reviewing Wednesday's economic data:
- The weekly MBA Mortgage Applications Index fell 3.7% (prior -4.6%) with purchase applications declining 3% while refinancing applications dropped 7%.
- Chicago PMI fell to 40.4 in May (Briefing.com consensus 46.1) from 48.6 in April.
- The JOLTS - Job Openings totaled 10.103 million in April from a revised 9.745 million in March (from 9.590 million).
The stock market had a strong showing Thursday, but it didn't start out that way. Things were more mixed shortly after the open until stocks found some upside momentum. Ultimately, the major indices all closed near their best levels of the day, which had the S&P 500 above the 4,200 level. The Dow Jones Industrial Average closed with the slimmest gain due in part to a sizable loss in Salesforce (CRM) after its earnings report.
The indices shifted into rally-mode shortly after the release of . Market participants were also digesting weekly initial jobless claims and the ADP Employment Change for May that reflected continued strength in the labor market.
There was also some pleasing data from overseas that pushed global growth concerns to the backburner for the time being. China's Caixin manufacturing PMI for May jumped back into expansion territory with a 50.9 reading (prior 49.5) and the eurozone's CPI moderated to 6.1% year-over-year in May from 7.0% in April while core CPI dropped to 5.3% year-over-year from 5.6%.
Mega caps and semiconductor stocks paced broad based gains. The Vanguard Mega Cap Growth ETF (MGK) rose 1.3% versus a 1.0% gain in the market-cap weighted S&P 500. The PHLX Semiconductor Index (SOX) rose 1.6%.
Reviewing Thursday's economic data:
- May ADP Employment Change 278K (Briefing.com consensus 160K); Prior was revised to 291K from 296K
- The key takeaway from this report is that job growth is still strong, but that pay growth is slowing. For job stayers, the pain gain in May was 6.5% versus 6.7% in April.
- Weekly Initial Claims 232K (Briefing.com consensus 233K); Prior was revised to 230K from 229K; Weekly Continuing Claims 1.795 mln; Prior was revised to 1.789 mln from 1.794 mln
- The key takeaway from the report is that businesses overall remain reluctant to cut staff size in large numbers, leaving the level of initial jobless claims well below what is typically seen in a recession environment.
- Q1 Productivity - Rev. -2.1% (Briefing.com consensus -2.7%); Prior -2.7%; Q1 Unit Labor Costs - Rev. 4.2% (Briefing.com consensus 6.3%); Prior 6.3%
- The key takeaway from this report is that productivity was weak in the first quarter as the level of output (+0.5%) fell well shy of hours worked (+2.6%).
- May IHS Markit Manufacturing PMI - Final 48.4; Prior 48.5
- May ISM Manufacturing Index 46.9 (Briefing.com consensus 47.1); Prior 47.1
- The key takeaway from the report is that it reflected an ongoing contraction in activity with New Orders and Supplier Deliveries falling, though the Production Index climbed back into expansionary territory, which gives some hope for an improvement in the coming months.
- April Construction Spending 1.2% (Briefing.com consensus 0.2%); Prior 0.3%
- The key takeaway from the report is that continued weakness in new single family construction was overshadowed by strength in private and public nonresidential spending.
The stock market closed out this holiday-shortened week on a strong note. Technical momentum after the S&P 500 closed above 4,200 on Thursday was a contributing factor, along with positive reactions to the Senate fast-tracking passage of the debt ceiling bill in a 63-36 vote.
The biggest driving factor, though, was the Employment Situation Report for May, as it helped push recession and rate hike fears to the backburner for the time being. The employment report featured a 339,000 increase in nonfarm payrolls, a moderation in year-over-year average hourly earnings growth to 4.3% from 4.4%, and a bump in the unemployment rate to 3.7% from 3.4%.
Mega cap stocks had a decent showing, but the rest of the market had an even better performance. The Vanguard Mega Cap Growth ETF (MGK) rose 1.0% while the Invesco S&P 500 Equal Weight ETF (RSP) rose 2.2%. The market-cap weighted S&P 500, which flirted with 4,100 last week, reached 4,290 at its high of the day and closed with a 1.5% gain.
All the major indices closed with sizable gains near their best levels of the session. 29 of the 30 Dow Jones Industrial Average components closed with a gain and all 11 S&P 500 sectors settled higher also.
Reviewing Friday's economic data:
- Nonfarm payrolls rose by 339,000 in May (Briefing.com consensus 190,000) from a revised increase of 294,000 in April (from 253,000)
- Nonfarm private payrolls rose by 283,000 (Briefing.com consensus 177,000) from a revised 253,000 in April (from 230,000)
- Average hourly earnings rose by 0.3% in May (Briefing.com consensus 0.3%) following a revised 0.4% incline in April (from 0.5%)
- The unemployment rate rose to 3.7% (Briefing.com consensus 3.5%) from 3.4% in April
- The average workweek fell to 34.3 hours (Briefing.com consensus 34.4) from 34.4 hours
- The key takeaway from the report is that it featured strength in nonfarm payrolls that will help assuage concerns at this point about the economy suffering a hard landing, as well as a jump in the unemployment rate and dip in average hourly earnings growth on a year-over-year basis that should assuage some (certainly not all) of the Fed's concerns about the tightness of the labor market and wage-push inflation going into its June FOMC meeting.
The data provided is for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. The information contained here is not guaranteed as to accuracy or completeness. All economic and performance information is historical and does not guarantee future results.
The Dow Jones Industrial Average is a price-weighted index comprising 30 widely traded blue chip U.S. common stocks. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the NASDAQ stock exchange. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. The Cboe Volatility Index (VIX) shows the market’s expectation of 30-day volatility and is constructed using the implied volatilities of a wide range of S&P 500 Index options. Weekly and year-to-date figures for the VIX show percentage changes, not investment returns. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.
The Treasury yield curve is derived from available U.S. Treasury securities trading in the market and is provided directly by the U.S. Federal Reserve. The spread measures the difference in yield between two government securities. A normal (positive) yield curve occurs when longer-term rates are higher than shorter-term rates. The opposite holds true for an inverted yield curve. Year-to-date changes in U.S. Treasury bond yields are shown in basis points (bps). One hundred basis points equals one percent.
Oil prices are represented by West Texas Intermediate (WTI) crude oil.
The G20 countries comprise a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, and over 75% of global trade.
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