Market Update: July 18, 2023
Economic data for the week included producer and consumer price inflation continuing to decelerate—and even more so than expectations. Consumer sentiment also improved to the highest point in several years.
Global equities gained last week on the back of the improving U.S. inflation data. Bonds also gained along with the retreat in interest rates. Commodities rose with help from a weaker dollar.
In the midst of slower summer volume, U.S. stocks gained last week, as falling consumer and producer inflation boosted investor spirits. The key factor, of course, is the impact on the economy, as well as the lower probability of the Fed’s continued hawkish rate hike path. Every sector ended in the positive last week, with communications and consumer discretionary leading the way, and energy and consumer staples coming up in the rear, with lesser gains. Real estate fared positively, up nearly 3%, as interest rates fell back. Earnings season began Friday, with several large banks showing mixed results for the quarter.
The NASDAQ announced a ‘special rebalance’ of the tech- and communications-heavy NASDAQ 100 index, due to the largest seven companies representing over 50% of the index’s market cap. This is only the third time for such an event, with the prior two in 1998 and 2011. This is set to take place July 24, to ‘cap’ largest holdings at certain percentage level, and dispersing percentages throughout the rest of the index. Specifically, per their index methodology, stocks comprising 4.5% of the index can be capped so that the group remains at or below 48% of the total index. This preserves diversification in the index, and also, from a practical standpoint for ETFs that track that index (such as QQQ), helps avoid regulatory problems with over-concentration. Despite its common usage, the NASDAQ 100 has never been a complete solution as a diversified U.S. stock market index. In fact, per Morningstar, 51% of the index is dedicated to information technology alone, with nearly 85% being related to tech, communications, and consumer discretionary stocks—a significant ‘growth’ tilt to say the least.
Foreign stocks outperformed U.S. on the week, with strength in Europe offset by weaker Japan results. A -2% decline in the U.S. dollar was helpful in U.S.-investor terms. In emerging markets, stocks in China, Korea, and Taiwan all saw strong weeks, helped by a variety of Chinese support measures aimed at stemming damage from the property sector, which could be holding back consumers.
Bond prices gained last week, as interest rates declined, along with lower CPI and PPI readings, with the lowered expectations for the tight Fed policy. High yield slightly outperformed other investment-grade groups. Foreign bonds gained several percent in developed and emerging markets, helped by the dollar’s decline.
Commodities rose across the board, helped by the drop in the dollar. Industrial metals and precious metals were each up over 4%. Crude oil prices rose 2% last week to over $75/barrel.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.