August 19, 2023

Weekly Market Commentary August 14th to August 18th 2023

Retails Sales led off a light week of economic releases and came in at a significantly stronger pace than anticipated, showing a resilient consumer. Retail Sales increased 0.7% in July, the largest monthly gain since January, and well ahead of the estimate of 0.4%. The control group (utilized in the GDP calculation) increased 1.0% in July, and 5% year-over-year, which is the largest increase since February. However, the annual pace continues to slow from the start of last year as consumers are using alternative means to fund consumption through credit cards and considerable increase in 401k hardship loans.

Housing Starts exceeded forecasts while Building Permits came in weaker than forecast. However, both remain at very depressed levels from a year ago. Housing Starts increased by 3.9% in July but are 19.5% below last year’s level. Building Permits increased by 0.1% in July but remain 26% below last year’s level. Higher rates have negatively impacted affordability and have started to impact homebuilder confidence.

The highly anticipated Federal Reserve minutes were released on Wednesday, noting “Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.” Overall, there is an increasing difference of policy opinion among officials. Chairman Powell will present in Jackson Hole next week with his comments highly anticipated.

After starting the week with a positive day, the S&P 500 declined over the next four closing at 4,369, declining by 2.1% for the week, while the YTD return sits at 13.8%.

In Fixed Income markets, yields increased slightly across the curve as sticky inflation and stronger economic growth has markets factoring in higher rates. The 2-Year U.S. Treasury note now yields 4.94%, while the 10-Year yields 4.25%. The 2-10 spread decreased from -0.74%, to -0.69%.

Key economic releases next week include service and manufacturing data, new home sales and durable goods orders.

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