Economic Update 6-20-2023 

• Economic news for the week included the Federal Reserve keeping interest rates steady for the first time in a year. In other data, consumer price inflation decelerated but remained high, while producer price inflation decelerated even further. Retail sales rose, while industrial production fell back, and several regional manufacturing indexes were mixed.  
• Global equities saw strong returns last week, in keeping with the Fed pause, lower inflation, and an absence of otherwise poor economic news. Bonds were little changed, along with a quiet yield curve, with corporates and foreign outperforming. Commodities fared positively, with gains in agriculture and natural gas. 

U.S. stocks steady gains last week. Every sector except energy ended positively, led by ‘growth’ areas technology, consumer discretionary, while industrials and materials also rallied. Real estate rose over a percent, with little change in interest rates on net. After an initial negative reaction to the FOMC meeting, as the hawkish tone alluded to more interest rate hikes than markets expected, mixed data later in the week settled nerves a bit, as did the realization that inflation is indeed improving. 

Foreign stocks fared positively as well last week, with Europe outpacing the U.K., Japan, and emerging markets. While industrial data surprised to the upside, the ECB elected to raise rates again by 0.25% to 3.50%, continuing at a robust clip to combat inflation, which is running at a higher rate than in the U.S. The ECB was also forthright about likely hikes in July and beyond. Accordingly, this, and the FOMC’s decision to pause, helped boost the value of the euro versus the dollar. Absent other factors in the near term, rising interest rates tend to elevate the attractiveness of a currency. The Bank of Japan, on the other hand, left their loose policy unchanged at a key rate of -0.1%, with no changes in forward guidance. 

Chinese stocks rose 5%, as the People’s Bank of China cut their key interest rate for the first time in a year, by 0.10%, in a sign of concern over weaker growth. China continues to run at a counter-cyclical nature to the rest of the world, with longer lockdowns punishing the economy—resulting in disappointing industrial data and especially high youth unemployment (over 20%, a political and social concern). Now, rather than hiking rates to combat inflation as in much of the rest of the world, Chinese officials have been stimulating. While concerns over this weakness have held risk sentiment back, such activity and valuations have tended to be bullish indicators looking ahead. 

Bonds ticked slightly higher for the week, along with minimal changes in interest rates, with Fed estimates for higher rates this year already seemingly baked in. Investment-grade and high yield corporates outperformed treasures, as did floating rate bank loans, due to a yield advantage. (This has become more of a differentiating factor in bond returns over the past year.) Foreign bonds moved higher along with a weaker dollar, largely affected by the ECB rate hike last week. Emerging market bonds also gained in a continued ‘risk-on’ environment. 

Commodities rose across the board last week, led by several agricultural commodities—corn, wheat, and soybeans—while energy also gained. Crude oil rose over 2% last week to $72/barrel, while natural gas prices rose 18%. Dynamics remain tied to ample supply, coupled with continued concerns over ongoing weaker demand. Higher gas prices were tied to a surprise spike in European prices along with the announced closure of an important gas field in the Netherlands, due to persistent earthquakes. 

 

Period ending 6/16/2023	1 Week %	YTD %
DJIA	1.31	4.60
S&P 500	2.62	15.78
NASDAQ	3.26	31.35
Russell 2000	0.58	7.25
MSCI-EAFE	2.88	13.65
MSCI-EM	2.91	8.85
Bloomberg U.S. Aggregate	0.20	2.22

 

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2022	4.42	4.41	3.99	3.88	3.97
6/9/2023	5.37	4.59	3.92	3.75	3.89
6/16/2023	5.34	4.70	3.99	3.77	3.86

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                    

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.