Weekly Updates

Market Update - August 5

Written by Justin J. Long CFP® | Aug 5, 2023 4:24:49 PM

We're into a new month and that brings new joy, new adventures, and new ways to engage with Diazo! We are spending our weekend with our family relaxing and hope you are too. Laura and I are wishing good luck to all the grownups and kids who are starting their first week of school this upcoming week! Don't forget to check out our Concierge Services webpage and see what Diazo can take off your plate.

And now onto the weekly recap:

It was a huge week of earnings that resulted in stock market losses. Apple (AAPL) and Amazon (AMZN) were the earnings reports that carried the most market-moving weight. Those reports garnered mixed reactions from investors, propelling shares of Amazon 8.3% higher on Friday while Apple fell 4.8%.

Overall, the price action this week was driven by a big jump in long-term rates that provided an excuse for participants to take some money off the table in a short-term overbought market.

The factors that drove the move in rates included supply concerns and the continuation of relatively strong data that support the view that the Fed is apt to keep rates higher for longer and may yet find reason to raise the policy rate again.

Still, the Fitch Ratings downgrade of U.S. credit to AA+ from AAA stole the show as a talking point when it comes to discussing the move in rates. The downgrade reflected the expected fiscal deterioration over the next three years, growing government debt, and erosion of governance related to peers.

Market rates actually declined following the downgrade, but shot higher immediately following the much larger-than-expected increase in ADP private-sector payrolls.

Treasuries started to widened their losses after the release of a better than expected report on productivity and unit labor costs on Thursday. Weekly initial jobless claims increased slightly, but still reflect a strong labor market. Meanwhile, the ISM Non-Manufacturing Index showed that services sector growth decelerated in July. 

On Thursday, the 10-yr note yield settled just 14 basis points shy of its high from October while the 30-yr yield was just 12 basis points below last year's high.

Yields ultimately backpedaled from their highs in response to the July Employment Situation Report, which showed a slowdown in nonfarm payroll growth that had the market considering the idea that it may be enough to keep the Fed on hold. The 10-yr yield closed nine basis points higher on the week to 4.06%. The 30-yr yield jumped 18 basis points to 4.21%. 

The highest probability that the market is assigning for another Fed rate hike at any of the remaining meetings this year is just 27.7% for the November FOMC meeting, according to the CME FedWatch Tool.

On a central bank related note, the Bank of England announced a 25 basis points rate hike to 5.25%.

Only one of the S&P 500 sectors logged a gain -- energy (+1.2%) -- while the utilities (-4.7%), information technology (-4.1%), and communication services (-2.9%) sectors saw the largest declines. 

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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.