June 30, 2023

Weekly Market Commentary June 26th to June 30th 2023

Despite higher interest rates and declining business investment sentiment both Durable and Capital Goods orders exceeded estimates in May.

Headline Durable Goods increased 1.7%, well above the estimate of -0.9% and well above the 1.2% rate in April. Durable Goods ex-transportation increased 0.6%, above the 0.0% estimate and well ahead of the -0.6% rate in April.

Capital Goods orders non-defense and ex aircraft “Core Capital Goods” increased by 0.7%, well ahead of the 0.1% estimate, but mostly offset with a downward revision to 0.6% (down from 1.3%) in April.

New single‐family home sales increased 12.2% in May to a seasonally adjusted annual rate of $763k. The median sales price of new houses increased 3.5% to $416k. The monthly supply of new homes for sale fell 11.8% month-over-month and on a year-over-year basis, inventory was down 19.3%.

The third estimate for first quarter GDP surpassed expectations, growing to 2.0%, up from 1.3%. This increase was mostly attributable to the U.S. consumers resilience with personal consumption increasing at a rate of 4.2%, up from 3.8% in the prior reading.

The Fed’s preferred inflation gauge Personal Consumption Expenditures (PCE) closed out the week. Headline PCE came in at 0.1%, at the forecast and below the prior month’s rate of 0.4%, while the year-over-year rate was 3.8%, at forecast and below the prior month’s rate of 4.3%. Core PCE increased by 0.3% month-over-month, at forecast and below the prior month’s rate of 0.4%, and increased by 4.6% year-over-year, just below the prior month’s rate of 4.7%. Inflation continues to decline, but the pace has slowed in recent months, likely increasing the odds of further Fed Funds rate increases.

The S&P 500 started the week at 4,328 and closed at 4,450, up 2.8% and a 52-week high as the year-to-date return is now just under 16%.

In Fixed Income markets, yields rallied across the curve as sticky inflation and stronger economic growth has markets factoring in higher rates. The 2-Year Treasury note now yields 4.88%, up 0.55% this month, while the 10-Year Treasury yields 3.83%, up 0.23%. This increased the inversion of the 2-10 spread to -1.05%, from -0.73% to start the month.

Despite a Holiday shortened week there are plenty of important economic data releases next week including ISM manufacturing and services indices and the Unemployment Report.

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