Hello, this is Tom Jalics, Chief Investment Strategist at Fifth Third Bank
The major US equity indices ended mixed last week. The S&P 500 Index was up 0.7% for the week, which was the benchmark's eighth weekly gain out of the past ten. The Nasdaq Composite closed the week down 0.6%. The Dow Jones Industrial Average was up 2.1% for the week, finishing Friday with ten consecutive daily increases. U.S. Treasury yields moved slightly higher last week with the 10-year U.S. Treasury note ending the week at 3.84% and the 2-year U.S. Treasury note ending the week at 4.84%. The 2-year/10-year U.S. Treasury yield curve remained inverted, finishing the week 100 basis points inverted. Gold finished the week 0.4% higher, ending the week at $1963/ounce. West Texas Intermediate (WTI) crude oil was up by 2.0% for the week, ending the week at $76.94/barrel.
Several important economic reports were released last week that when combined, continue to suggest an economy that is far from recession. Total retail sales in June increased a weaker-than-expected 0.2% month-over-month, yet May sales were revised up to 0.5%. Additionally, control group sales, which are used in the computation for personal spending in the GDP report, were up a solid 0.6%, leaving them far from an economy in recession. Initial jobless claims for the week ending July 15 decreased by 9,000 to 228,000. That is the lowest level of initial claims since mid-May. This report points to continued strength in the labor market and little fear about a material drop-off in end goods and services demand. Existing home sales decreased 3.3% month-over-month in June to a seasonally adjusted annual rate of 4.16 million. Sales were down 18.9% from the same period a year ago. Inventory of existing homes for sale remains tight, due to the strength of the labor market, the ability to work remotely, and the jump in mortgage rates that is deterring existing homeowners’ interest in moving. In short, existing home sales are being crimped more so by the limited supply than by weak demand.
Earnings have been and will remain on investor’s minds. With eighteen percent of companies in the S&P 500 index reporting second quarter earnings thus far, the index is reporting its largest year-over-year decline in earnings since second quarter 2020, according to FactSet. Of these early reporters, 75% have reported actual EPS above estimates, which is below the 5-year average of 77%. The blended earnings decline for the second quarter is -9.0% today, compared to an earnings decline of -7.0% at the end of the second quarter. If -9.0% is the actual decline for the quarter, it will mark the largest earnings decline reported by the index since second quarter 2020. It will also mark the third straight quarter in which the index has reported a decrease in earnings. Looking ahead, analysts still expect earnings growth for the second half of 2023 and for all of calendar year 2023 where analysts predict earnings growth of 0.1%.
This week, Federal Reserve officials will gather for a two-day policy meeting that starts on Tuesday, with an interest rate decision expected on Wednesday. The advance estimate for second-quarter gross domestic product will be released on Thursday, followed by the Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge, on Friday. This week also brings updates on home prices, along with new and pending home sales for June. Earnings take center stage this week with 166 S&P 500 companies are scheduled to report results for the second quarter. Blue chip companies expected to report include Microsoft, Meta Platforms, Alphabet, Visa, Mastercard, Texas Instruments, Coca Cola Company, McDonald’s, Boeing, AT&T, Verizon, Ford Motor Company, Chevron, and ExxonMobil, among others.
As always, we will be watching and reporting to you next week. Thank you.
