Market In a Snap! July 14th, 2023

By: Dave Chenet, CFA, CAIA

 CloseWeekly returnYTD return
S&P 5004,5052.42%17.37%
Nasdaq Composite14,1133.32%34.85%
Russell 2,0001,931.093.68%9.84%
Crude Oil75.272.62%-6.22%
US Treasury 10yr Yield3.82%  

Source: YCharts, Yahoo! Finance, WSJ

Stocks Celebrate Cooling Inflation!

As we discussed in our Podcast this week (click here to view recent PCM podcasts – most recent episode available soon), markets celebrated CPI and PPI inflation numbers this week showing signs of moderation.  Headline inflation moderated to 3% year-over-year, while core inflation came in at 4.83% (mostly reflecting lower energy prices since summer ’22).  Small-cap stocks performed better on the week than their large-cap counterparts, extending recent outperformance (small-caps +11.7% v. large-caps +8.5% since June 1st).   Markets will turn their eyes next to Q2 earnings reports.  While still early in the reporting season, blended earnings for the S&P 500 show a year-over-year decline of -7.1%.  If this holds, it will be the weakest quarter since Q2 2020 and the third consecutive negative quarter.  Analysts are, however, expecting a rebound in earnings into year-end and for 2023 earnings to be finish the year roughly equivalent to the number posted in 2022, and 2024 to post a 10% increase in earnings.  Somewhat incongruous with this estimate, however, is the continued expectation that the Federal Reserve will begin cutting interest rates in early 2024.  Absent a “hard landing” recession, policy makers may be content to leave rates at currently restrictive levels.  While the Fed is broadly expected to raise rates at its late-July meeting, it may yet surprise markets with a hawkish message that investors should prepare for “higher for longer.”    

What We’re Reading:JPMorgan Asset’s Michele Says Global Bond Rally Is Just StartingAxios: NASDAQ 100 Index to rebalance after Magnificant Seven grow to disproportionate share

Chart of the Week: 

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