Hello, this is Josh Waynick, Investment Strategist at Fifth Third Bank
Major US equity indices disappointed investors with negative returns for the first week of July. Specifically, the S&P 500 moved lower by 1.1%. The Nasdaq Composite was down 0.9% and the Dow Jones Industrial Average fell 1.9% for the week. Looking at the U.S. Treasury yield curve, over the last week yields rose across all term points with longer maturities seeing a larger increase in yields than shorter maturities, unwinding some of the current US Treasury yield curve inversion. The U.S. 10-year treasury note yield rose to 4.1% with the U.S. 2-year treasury note rising to 5.0%. As a result, the 2-year/10-year U.S. Treasury Curve remained inverted and ended the week at 88 basis points. The US Dollar index, measuring the relative strength of the US Dollar against a basket of global currencies, ended the week lower by 0.6%. Gold rose last week by 0.3%, ending the week at $1,925 per ounce. Additionally, West Texas Intermediate crude oil rose by 4.3% over the week, ending at $73.66 per barrel.
Looking at the past week with a bit more color, domestic equity markets declined the most on Thursday July 6th and extended the losses on Friday the 7th following an update on various labor market details. Investors digested strong private hiring data paired with the most recent Job Openings report which suggested that demand for labor remains very strong with roughly 9.8 million job openings. Additionally, investors digested new wage inflation data that came in above consensus estimates. As Federal Reserve Chair Jerome Powell said at the June Federal Open Market Committee: "the labor market remains very tight." Market participants believe bringing supply and demand for labor back into balance is the final hurdle to fully tackle the domestic inflation issue. Once inflation is fully contained, the U.S. Central bank can ease its interest rate tightening campaign. Last week’s labor related datapoints increased the odds of future interest rate increases and likely eroded the possibility of rate cuts in the second half of 2023, leading to financial market volatility.
Looking to the week ahead, investors will have new inflation data points to digest. The June Consumer Price Index data will be released on July 12th and will provide a new data point to investors on how far inflation has abated from the peak of 9.1% in June 2022. The following day, the Producer Price Index will give investors insights into how far producer price inflation has come down.
Additionally, companies will continue to report on their second quarter 2023 earnings. Most notably, investors will pay close attention to earnings releases and commentary from some of the largest domestic financial companies on July 14th when JP Morgan, Wells Fargo, and BlackRock report their second quarter earnings before markets open.
As always, we will be watching and reporting back to you next week.