Weekly Market Commentary July 3rd to July 7th 2023
Even in a holiday-shortened trading week, a number of important economic updates were released which swayed financial markets. The Unemployment Report, ISM Manufacturing, and ISM Services Index were the headliners.
The employment situation showed conflicting data this week with a weaker Non-farm Payrolls report versus The ADP Employment report. New jobs and the unemployment rate deviated little from economists’ expectations. Nonfarm payrolls rose 209,000 while private payrolls showed weakness, only adding 149,000 jobs, much lower than the 199,000 estimate. The unemployment rate dropped one tenth to 3.6%, remaining near fifty-year lows. Average Hourly Earnings came in at 4.4% year-over-year, two tenths hotter than expected.
The ADP Employment report showed a 497,000 rise in private payrolls which was drastically higher than consensus. Tight labor markets and slower wage gains have continued to be headwinds for attracting and retaining workers.
Initial Jobless claims were reported at 248,000, in line with consensus and up 12,000 from the week prior. The four-week moving average is down 3,500 to 253,000. This current report could be swayed due to the recent shutdown of Bed Bath and Beyond retail locations.
Recent FOMC minutes reinforced key considerations about the U.S. economy, continued sticky inflation and a tight labor market. The FOMC participants never mentioned a recession but expressed continued focus on the banking sector and the impact of prior rate hikes that are yet to be realized. The Committee indicated a reluctance for any rate cuts in 2023, with the median forecast calling for another 50 basis points of hikes, likely in 25 basis points increments.
The ISM Manufacturing Index was in contractionary territory for the eighth straight month as firms lowered production and implemented more layoffs. The report was lower by 0.9% at 46.0, below the median economist forecast of 47.3. The index has been on a gradual downtrend since June 2022, and is the lowest since May 2020.
The ISM Services Index was in positive territory for the sixth straight month. The main index rose 3.6 percentage points to a four-month high of 53.9, exceeding the median economist forecast of 50.8.
The S&P 500 started this week at 4,450 but after the ADP report was released it took a minor dip. It ended the week at 4,399, off by 1.1%. The Nasdaq Composite finished the week lower by 0.9%. The yield on the 10-Year U.S. Treasury jumped by 22 basis points during the week to close back at the previous high for the calendar year of 4.06%.
We are in for another important week next week with some key inflation data coming out, the headliners will be the Consumer Price Index and Producer Price Index.