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Weekly Market Update, June 5, 2023

Report Releases: May 29–June 2, 2023

Conference Board Consumer Confidence, May (Tuesday)
Consumer confidence fell less than expected in May as sentiment remained surprisingly resilient during the month despite negative headlines surrounding the debt ceiling standoff.

• Expected/prior consumer confidence index: 99.0/103.7
• Actual consumer confidence index: 102.3

ISM Manufacturing, May (Wednesday)
Manufacturer confidence fell in May due to declines in new orders, supplier deliveries, and inventories. This result left the index in contractionary territory for the seventh consecutive month.

• Expected/prior ISM Manufacturing index: 47.0/47.1
• Actual ISM Manufacturing index: 46.9

Ward’s Total Vehicle Sales, May (Thursday)
Total vehicle sales fell to 15.05 million in May. This figure is down from 15.91 million in April and below the mean estimate of 15.23 million.

Employment Report, May (Friday)
Hiring continued to accelerate in May, with 339,000 jobs added against calls for a more modest 195,000. The strong result may support further rate hikes from the Federal Reserve (Fed) as the central bank continues to combat inflation through tighter monetary policy.

• Expected/prior change in nonfarm payrolls: +195,000/+294,000
• Actual change in nonfarm payrolls: +339,000

The Takeaway
· Consumer confidence slowed but remained higher than expected as employment remains strong
· Manufacturing and the auto sector showed signs of softening due to inventory builds and higher levels of interest rates

Equity IndexWeek-to-DateMonth-to-DateYear-to-Date12-Month
S&P 5001.88%2.48%12.37%4.32%
Nasdaq Composite2.07%2.37%27.01%8.47%
DJIA2.17%2.63%2.89%3.80%
MSCI EAFE0.88%2.76%9.76%6.16%
MSCI Emerging Markets1.25%2.72%3.80%-4.60%
Russell 20003.32%4.66%4.62%-2.02%
Source: Bloomberg

The S&P 500 posted its third straight weekly gain as the Nasdaq posted its sixth straight gain—marking a first since January of 2020. The market has continued its rally on better-than-expected earnings and consumer resilience. The move in equities was a tale of periods as value stocks rallied on Friday after a stronger-than-expected employment report gave the Fed more room for potential rate hikes.

Fixed Income IndexMonth-to-DateYear-to-Date12-Month
U.S. Broad Market-0.28%2.17%-2.04%
U.S. Treasury-0.36%1.99%-2.20%
U.S. Mortgages-0.36%1.93%-2.70%
Municipal Bond0.37%2.03%0.68%
Source: Bloomberg

The 1-month U.S. Treasury yield fell 36 basis points (bps) as government officials came to a proposed debt ceiling settlement. Treasury yields beyond the 5-year also fell, before ticking slightly higher following a strong employment report. The 10-year was down 12 bps and the 30-year fell 9 bps.

The Takeaway
· Stocks continued their momentum on better-than-expected earnings and potentially getting closer to the end of rate hikes from the Fed
· The proposed debt ceiling settlement saw a regain in interest in ultra-short T-bills

Looking Ahead
Mortgage applications, consumer credit, and jobless claims will all provide additional context for an overall economic picture. After last week’s stronger-than-expected employment report, we’ll look to see if this translates into home purchases or an expansion of consumer spending.

· ISM Services data for May will be released on Monday morning. Service sector confidence is expected to improve modestly in May, with the index set to remain in expansionary territory.
· Data on MBA Mortgage applications for the week of June 2, 2023, and consumer credit will be released on Wednesday. Mortgage applications have seen some softness amid higher rates. Consumer credit will be worth watching to see if trends change ahead of a potential shift in student loan forbearance.
· Wednesday will see the release of April’s trade balance report. The April international trade report is set to show a widening trade deficit. The advance report on the trade of goods showed a 5.5 percent drop in goods exports while imports of goods rose 1.8 percent.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2023 Commonwealth Financial Network®

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