Market Update – July 28, 2023

Author: Joe Maas, CIO, SPG Advisors, LLC

Market Update

Financial Markets

The question everyone’s been asking, “when’s the recession coming?” has recently continued to shift into, “is there a recession coming?”, which is a sensible question given the spectacular year to date equity rally, a steady Q2 earnings season, lower inflation, low unemployment, and many other bullish economic factors on the horizon.

Accordingly, as we near the end of July, as of Thursday, July 27^th, the S&P 500 and Nasdaq Composite picked up +1.9%, the Dow Jones Industrial Average pulled ahead +2.54%, and the 10-year US Treasury yield was up +5.25% on a month to date basis.

Market News

Consumer Confidence Rises. July’s Consumer Confidence rose +6.3% from June, as consumers continue to worry less of a recession. This marks the highest level since July 2021 and rose largely because of consumers’ confidence in employment markets, justifiably so with the June unemployment rate at a historically low 3.6%. similarly, 46.9% of consumers surveyed believed jobs were “plentiful”, which was up slightly from June.

July FOMC Meeting. Heading into the July Federal Open Market Committee meeting this week, markets priced in over a 99% probability of a 25-basis point hike. Unsurprisingly, on Wednesday, Fed Chair Jerome Powell announced that 0.25% hike, bringing the target Federal Funds range to 5.25 – 5.5%.

Beyond this week’s meeting, it is interesting to note that Powell is one of the most popular Federal Reserve Chairs and has historically gotten the most approval of other FOMC participants. Powell was able to rally Fed members in the midst of a once in a lifetime pandemic and decades high inflation, which may be another sign for the bulls that many trust Powell and his leadership of the US’s central bank.

Particularly in comparison to Fed Chair Volcker who was brutally criticized for his handling of 15% inflation in the 1980s, Powell has stacked up much better, with much fewer dissenting opinions within the FOMC, a good sign for sentiment and trust in the Federal Reserve’s actions.

Durable Goods Rise for the Fourth Straight Month. June durable goods orders came in higher than expected at a monthly increase of +4.7%. More specifically, nondefense aircraft orders were up +69.4% in the month, as major airlines struggle to secure enough planes for expected growth in operations. There is no question that industrial demand across most sectors is beginning to appear more stable, another bullish sign for markets.

June Personal Income, Spending, & Saving. Personal income rose +0.3% on a monthly basis in June, while spending picked up a greater +0.5%. As a result, personal savings rate slipped 0.3% to 4.3% in June, as consumers’ spending picked up faster than incomes. In any case, moderate wage growth and overall consumer demand remains strong, yet another win for those taking a bullish stance on the economy. 

PCE Inflation Falls Again in June. Along with CPI and PPI, Personal Consumption Expenditure Inflation fell substantially in June, to a headline rate of 3.0% and a Core PCE rate of 4.1%. On a monthly basis, both PCE and Core PCE were up a mere +0.2%. This comes as the Federal Reserve may be at the end of their hiking cycle and other leading data, such as Producer inflation point to lower inflation in the coming year.

Summary

This week was a week for the bulls, with Consumer Confidence and higher personal spending demonstrating an optimistic consumer and Durable Goods Orders pointing to resilient industrial demand. Fed Chair Jerome Powell brought us another 0.25% rate hike in the July FOMC, as key PCE inflation on Friday pointed to a continued disinflationary environment.

We appreciate your continued trust.

Joe Maas

Chief Investment Advisor, SPGA, LLC

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.