June 16, 2023

Weekly Market Commentary June 12th to June 16th 2023

The Federal Open Market Committee (FOMC) opted to pause their aggressive rate hiking cycle, holding the Fed Funds rate steady this week after increasing rates at the last 10 meetings since March 2022. Chairman Powell (“accidentally” slipping in the word “skip”) guided for the group’s outlook for two incremental increases by year end with a modified dot plot.

The Consumer Price Index (CPI) rose as expected in May, 0.1% at the headline and 0.4% Core (ex-food and energy.) On a year-on-year basis, CPI rose 4.0%, a tenth lower than expected, and Core at 5.3%, a tenth higher, with both readings lower than April. The annual headline figure is now at its lowest level since March 2021, good news for a Fed keenly focused on taming rising prices.

The Producer Prices (PPI) report was well received by market participants as well, coming in -0.3% for May, cooler than expected. The Core met expectations at 0.2%. The 1.1% year-on-year headline reading was meaningfully friendlier than 2.3% in April. Final demand goods declined by 1.6%, led lower by a 13.8% drop in gasoline prices. Raw materials shortages and supply chain strains seem to be continuing to ease.

Retail Sales rose 0.3% in May, better than an expected pullback of -0.2%. Excluding autos and gasoline, the reading was higher at 0.4%, double the consensus estimate. While nominal gasoline spending fell 2.6% in the month, prices declined by more than 5%, showing an uptick in demand on an inflation-adjusted basis. Consumer spending on motor vehicles and parts was positive, as was electronics and appliance store spending.

The S&P 500 closed the week at 4,409, an impressive 2.6% higher. The Nasdaq Composite advanced by 3.2%. The 10-Year U.S. Treasury yield finished the week roughly where it started at 3.76% after trading in a range of 3.69-3.83%

Key economic releases in the upcoming holiday-shortened trading week include Housing Starts and Permits, Existing Home Sales and some regional manufacturing data.

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