Weekly Market Update (July 16, 2023)
HIGHLIGHTS
S&P500 went up this week as the economic data showed signs of slowing inflation. Short covering continued, and both the S&P500 and Nasdaq hit the new high of the year.
- Inflation: Core consumer price index (CPI) increased by only 0.16%, which is the smallest increase since 2021. Producer price index (PPI) also recorded the smallest increase since 2020. Both of them pointed to the signs of cooling inflation.
- Rebalance: Due to the special rebalance announcement of Nasdaq, investors are taking more interest in the equal-weighted ETF. The announcement is about the overconcentration in the index, and it would like to tackle the issue by redistributing weights from large-cap to the other constituents. China’s
- Headwind: CPI in China remains unchanged while PPI dropped 5.4% YoY, the largest decline since 2015. Investors are concerned about the deflation and slowing economic growth. More speculation around the potential stimulus that will be implemented in China.
MARKETS
| Nasdaq | 14,113.70 | +3.32% |
| S&P 500 | 4,505.42 | +2.42% |
| Dow | 34,509.03 | +2.29% |
| 10-Year | 3.82% | -23bps |
| Brent | 79.87 | +1.78% |
| DXY | 99.91 | -2.31% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Goldman Sachs: Price of tech stocks that trade at high multiples jumped significantly this week, mainly driven by the expectation of falling interest rates. The discounting impact on future earnings is smaller, supporting the higher current prices.
UBS: Equal-weighted US indices are attractive if the economic data continues to support the case of a soft landing. In contrast, the market-cap-weighted US indices are having a high idiosyncratic risk due to high concentration in a few tech names.
Fixed Income
Goldman Sachs: As the market expects the likelihood of a full-blown distress cycle to be lower, the unsecured bonds are likely to outperform. The low supply of unsecured bonds compared to secured bonds, especially for high-yield bond issuance, is another technical support for unsecured bonds.
Standard Chartered: Bond yield is likely to peak after the lower-than-expected inflation data. Market is expecting a “dovish hike” of 25bps in the coming meeting and a pause in the one after. Be aware of the CPI and PCE reports between the two meetings.
Economy
J.P. Morgan: The strong labor market helped to support consumption in the first half of the year. However, the momentum in labor market is beginning to cool down, showcased by indicators like JOLTS job openings and private employment.
Standard Chartered: The inflation-adjusted rate, aka real rate, is tightening due to slowing inflation. It is already above the neutral rate, which is the rate that keeps the economy from overheating. The fast pace of hikes in the previous year is starting to impact the job markets.