Hey Folks, markets finish off a holiday shortened week higher with lighter volume. Most of the upside momentum was spurred by comments by “Boom Boom” Powell and weaker economic data. Get my take on where we can go over the summer months.
MARKET SOUND BITES:
Markets showed strength recording record highs in Nasdaq and the S&P. In fact, Nasdaq Composite ended the week 73.71% off its lows since the market began its rebound in mid- to late-2022, while the more value-oriented and narrowly focused Dow had gained less than half of that amount, 32.79%. Markets were closed half day on Wednesday and all day on Thursday in observance of the US Independence Day holiday. Trading volume was light most of the second half of the week. Expectations for lower interest rates, fed by signs of weakening growth and easing inflation pressures, seemed to remain a major factor in favoring growth stocks by placing a lower implied discount on future earnings.
On Monday, ISM posted its lowest reading of manufacturing activity (48.5, with levels below 50.0 indicating contraction) since February. A separate reading also showed a surprise contraction in construction activity. More surprising may have been a sharp downturn in the ISM’s gauge of current services sector activity, reported Wednesday, which plunged a full five points into contraction territory, from 53.8 in May to 48.8 in June—its lowest level since soon after the start of the pandemic lockdowns in early 2020. On Tuesday, the JOLTS report revealed that job openings rose slightly to 8.14 million in May, but from a downwardly revised 7.9 million in April—the lowest level in over three years. And on Friday we saw the official monthly Jobs numbers coming in at 206,000 confirming a slowdown in job growth with the unemployment rate ticking higher to 4.1%. We also saw wage feel to 3.9%.
“Boom Boom” Powell’s comments and the week’s economic data appeared to drive a decline in long-term U.S. Treasury yields over the week.
In Europe ECB President Christine “Queen Bee” Lagarde appeared to strike a slightly more hawkish tone. She said that Europe is “still facing several uncertainties regarding future inflation She added: “It will take time for us to gather sufficient data to be certain that the risks of above-target inflation have passed.” A final estimate of eurozone inflation confirmed that the year-over-year change in consumer prices ticked lower in June to 2.5%. However, a crucial services component remained stubbornly high. Germany’s manufacturing base weakened further in May. Seasonally adjusted orders fell 1.6% sequentially, while industrial production contracted 2.5%.
Data from Japan’s biggest union group indicated that its members achieved an average wage increase of 5.1%, the biggest uptick in 33 years. The final figure, which included more small businesses, came in below the initial estimate of a 5.28% wage hike but still highlighted the strong upward momentum in wages. In the first three months of the year, Japan’s economy shrank by 2.9% year over year, a sharper contraction than the first estimate that put the decline in gross domestic product (GDP) at 1.8%.
China’s manufacturing sector shrank in June for the second consecutive month, government data showed. The official manufacturing purchasing managers’ index (PMI) reached 49.5 in June, unchanged from May, as new orders and exports declined. The value of new home sales by the country’s top 100 developers fell 17% in June from the prior-year period, easing from a 34% decline in May. The data boosted hopes that China’s housing market, now in its fourth year of a downturn, may start to gain traction after the government announced a sweeping rescue package in May.
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Trade Smart !
HPB
