June 2, 2023

Weekly Market Commentary May 29th to June 2nd 2023

In a holiday shortened week, the debt ceiling extension agreement in Washington and the employment situation were the big stories. Investors were calmed mid-week as Congress agreed in principle on a package which will allow the US to pay its bills. Then on Friday, the monthly employment report came out for May and provided some shocking surprises. First was Non-Farm Payrolls. This job creations number was supposed to be tilted towards the lower side with the Fed’s aggressive tightening slowing the pace of hiring. Instead, we got a strong 339,000 newly created jobs when 190,000 was expected. This was the highest since January and maybe more indication that the Fed isn’t done raising rates yet. The April total was also adjusted to the upside from 253,000 to 294,000. Strength in the employment situation, while generally positive under normal times, tends to continue to rattle investors who would like to see the Fed pause or even begin to cut rates.

Balancing the high NFP number was the unemployment rate for May. Last month it hit a 50-year low at 3.4% and consensus called for a slight tick up to 3.5%. May’s figure instead came in at 3.7% so we had more newly created jobs and a larger number of unemployed folks….quite a conundrum for a Fed trying to decide its next move in their upcoming June meeting. Average Hourly Earnings came in as expected at +0.3%, which is slightly down from the previous month. On Thursday, the Weekly Initial Jobless Claims came in at a steady 232,000 which is on average for the past few weeks. Remember, this number was well below 200,000 for quite a while and is one of the leading indicators of company layoffs. And lastly in the employment situation, the JOLTS Job Openings also had a surprise to the upside coming in at 10.1 million jobs available, reversing a recent trend of falling job openings. The Fed certainly has its work cut out for itself over the next few months if we keep getting volatile numbers like these in a segment as important as employment.

Elsewhere this week, the Conference Board’s Consumer Confidence report came in at 102.3 when 99 was expected. April was revised up from 101.3 to 103.7 so we are seeing consumers become more optimistic, likely as events like the banking crisis get further in the rearview mirror and acceptance that higher rates aren’t choking the economy as much as some had predicted. And lastly, the Institute of Supply Management (ISM) came out with their Manufacturing survey which showed a continued retraction in this segment. Anything below 50 here is considered shrinking and May’s report came in at 46.9, continuing the negative trend since October of last year. This is not surprising since we’ve seen an overall shift in consumer behavior from goods to services in the past six to nine months.

The equity markets shrugged off any negative connotations of these wildly mixed reports and had one of their best weeks in a while. The S&P 500 closed at 4,282 or up 1.8%; the Dow Jones Industrials finished up 2.0% at 33,763; and the NASDAQ Index closed the week at 13,241 or up 2.0%. In the fixed income markets, yields dropped across the curve as the debt ceiling concerns were seemingly put to rest. The two-year Treasury note now yields 4.50%; the 10-year dropped to 3.70%; and the 30-year finished at 3.89%.

Next week’s releases include ISM Services Survey, the S&P US Services PMI, Factory Orders, and the Weekly Initial Jobless Claims.

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