Hello, this is Claire Ellerhorst, Senior Portfolio Manager at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices rose last week, as investors continued to focus on the path ahead for monetary tightening by the Federal Reserve. The benchmark S&P 500 Index jumped 2.6% in total return for the week and is now up 4.7% in the month of July so far. The tech-heavy Nasdaq Composite surged 3.3% and the blue-chip Dow Jones Industrial Average rose 2.0% for the week. Intermediate and longer-term yields fell, with the 10-year U.S. Treasury yield down 16 basis points to end the week at 2.76%. The spread between the 2-year and 10-year U.S. Treasury yields remained negative, a historical indicator that a recession may be coming. The U.S. dollar weakened versus major peers and oil was lower for a third consecutive week.
Market participants are weighing the impact of recent weaker economic releases on the Federal Reserve’s hiking path against persistent inflationary pressures and a strong labor market. Weekly jobless claims rose for another week, suggesting strength in the job market may be moderating. Housing starts unexpectedly dropped 2.0% in June, though building permits, a proxy for future construction, fell less than anticipated. Existing home sales for June came in at the slowest pace since the same month in 2020.
Second quarter corporate earnings releases picked up last week and markets seemed to be encouraged that reports were better than initially feared. According to data from FactSet, the blended earnings growth rate for S&P 500 reporters was at 4.8% year-over-year as of Friday, better than the 4.0% growth rate expected as of the end of the second quarter but still set to be the weakest since the fourth quarter of 2020. The number of companies reporting earnings that beat expectations is still below average thus far.
In the week ahead, earnings season continues with 175 S&P 500 companies reporting results. The Federal Reserve’s Federal Open Market Committee meets to set monetary policy, with market pricing suggesting expectations for a 75-basis point rate hike to the Fed funds rate. Bets had moved closer to anticipating a 100-basis point move but cooled off last week. Market participants will be watching for guidance on the path for rates ahead, particularly if the pace may slow to a 50-basis point hike in September. The July meeting announcement comes Wednesday afternoon. The U.S. economic calendar is busy in the upcoming week and includes releases on consumer confidence, second quarter economic growth, consumer spending, durable goods orders and more housing data.
As always, we’ll be watching and reporting back to you. Thank you.