Friday, May 26, 2023
U.S. and International Equities
U.S. stocks ended the week mixed as growth sectors continue to lead. Year to date, growth sectors have outperformed as some investors believe the slowing economy will cause the Federal Reserve to pivot. Positive developments surrounding artificial intelligence have also helped these sectors advance, highlighted this week by Nvidia’s blowout earnings report. Nevertheless, some investors question elevated valuations.
Yesterday was the 100th trading day of the year and it has been a very productive first 100 days for stocks for sure. Through yesterday, about 40% of the way through the year, the S&P 500 Index has gained a solid 8.1% (excluding dividends). Since 1950, in years when the S&P 500 has been up at least 7% through the first 100 trading days, the average gain over the rest of the year has been a robust 9.4%. That compares to the average gain of 5.4% in all years from trading day #101 through year end.
Fixed Income Lower
The Bloomberg Aggregate Bond Index finished lower as bond prices declined while yields increased. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, also ended the week lower.
Expected interest rate volatility, as measured by the MOVE Index, remains elevated relative to the last decade but in line with the periods before central banks started quantitative easing. We believe interest rate volatility will remain elevated as long as the Fed remains committed to reducing the size of its balance sheet. The most interest-rate sensitive fixed income assets are likely at higher risk of increased volatility. But buy-and-hold investors should remember that bonds pay back principal at par regardless of intra-period volatility.
Commodities Mostly Lower
Energy prices finished higher this week as global economic sentiment has improved. In addition, crude oil prices are showing signs of turning the corner. Consumer demand for gasoline is projected to climb as the U.S. enters the summer driving season. Also potentially supporting prices: the Department of Energy announced plans for re-stocking the country’s Strategic Petroleum Reserve, OPEC+ production cuts are in effect, and concerns over the debt ceiling are abating as negotiations progress.
Economic Weekly Roundup
U.S. Retail Sales
Despite sustained inflation and high interest rates, American retail sales grew by 0.4% month over month in April, supported heavily by spending at restaurants and bars, as well as online retailers, which rose by 0.6% and 1.2%, respectively. Auto sales and purchases made at health and personal care stores also increased. However, furniture sales, electronics, appliance purchases, and spending on hobbies all decreased. Investors should know that this indicates that although the American consumer is still feeling the effects of inflation, they are continuing to support the wider economy through regular spending.
Positive China Consumer Spending News
An increase in spending for a recent Chinese holiday shows Chinese consumers are ready to support the nation’s economic recovery. Holiday spending increased as a whole year over year, as spending centered on hotels and movie theaters rose by four and five times, respectively. Other popular gifts, such as lipstick and perfume, also rose. This spending gave members of the Chinese government hope that domestic demand would rise throughout the latter half of 2023, further assisting the country in its economic recovery.
April Japan Manufacturing Data
Increases in output and new orders helped Japan’s manufacturing activity grow for the first time in seven months. The main contributors to this jump in activity were sustained consumer spending and an easing of obstacles associated with supply chains. In further positive news for the Japanese economy, the service sector grew at a record pace. The growth in the service sector was primarily led by the increase in tourism, both foreign and domestic. Almost 2 million visitors travelled to Japan in April, setting a new post-pandemic high. Investors should know these are promising signs for Japanese recovery, and if trends continue, Japan is expected to continue its growth throughout 2023
U.K. April CPI
The U.K. consumer price index rose by 8.7% in April, down 1.4% from March levels. Although energy price inflation came in high at 12.3%, it continued to drop, down from 26.1% in March. However, food price inflation remained stubborn, as prices rose 19.1% year over year, a 45-year high. Excluding energy and food prices, core inflation was 6.8%, a 31-year high. With inflation remaining an issue for British consumers and recent incorrect predictions coming from the Bank of England (BOE), criticism towards the bank’s policies are becoming more common. Investors should know that an increase in interest rates is likely as the BOE seeks to get inflation under control.
Initial and continuing claims for the latest week came in below economists’ expectations. Initial claims for this week came in just higher than last week’s report. The labor market is expected to further loosen during the second quarter as companies respond to slowing demand triggered, in part, by the Fed’s tighter monetary policy.
The following economic data is slated for the week ahead:
- Tuesday: FHFA Home Price Index (Mar), S&P/Case-Shiller comp Home Price Index (Mar), Consumer Confidence (May)
- Wednesday: JOLTS Job Openings (Apr)
- Thursday: Weekly initial and continuing unemployment claims, ADP Employment Survey (May), Unit Labor Costs (Q1), Productivity (Q1), S&P Global PMI Manufacturing (May), construction spending (Apr), ISM Manufacturing (May)
- Friday: Hourly earnings (May), average workweek (May), manufacturing payrolls (May), nonfarm payrolls (May), private nonfarm payrolls (May), unemployment report (May)
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. For more information on the risks associated with the strategies and product types discussed please visit https://lplresearch.com/Risks
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Investing involves risk including the loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Bond yields are subject to change. Certain call or special redemption features may exist with could impact yield. High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.
Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Securities and advisory services offered through LPL Financial, a registered investment advisor and broker-dealer. Member FINRA/SIPC.
For Public Use Tracking 1-05370332
Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations |Not Bank/Credit Union Guaranteed | May Lose Value
For a complete list of descriptions of the indexes and economic terms referenced in this publication, please visit our website at lplresearch.com/definitions