LSA Connect

Economic Update 9-18-2023 

• Economic data for the week included mixed producer and consumer inflation results, with headline numbers driven by higher energy costs. Retail sales, industrial production, and regional manufacturing results showed gains for the prior. 

• Equities ended with flattish returns in the U.S., underperforming foreign stocks, which saw gains. Bonds fell back along with higher interest rates across the yield curve. Commodities gained last week, led by continued supply concerns in crude oil. 

Economic Update 9-11-2023 

• On a shortened holiday week, economic data was positive, which included ISM services sentiment coming in stronger than expected, and jobless claims falling a bit. 

• Global equities fell back as interest rates rose in conjunction with the still-decent U.S. economic data. Bonds fell in line with slightly higher yields, and a stronger U.S. dollar held back foreign debt markets. Commodities were mixed, with weaker metals offset by a continued rise in the price of crude oil. 

Economic Update 9-05-2023 

• Economic data for the week included a revision downward for U.S. Q2 GDP, as well as improved but still negative ISM manufacturing. Housing results were generally positive, from the standpoint of home prices and pending sales. Labor market data was mixed, with continued signs of slowing, but remaining decent. 

• Global equities experienced gains, with U.S. stocks outperforming most foreign with benign economic, inflation, and interest rate news. Bonds rose along with a pullback in interest rates. Commodities were led higher by crude oil and industrial metals.

Economic Update 8-28-2023 

• Economic data for the week included a decline in durable goods orders, while housing data was mixed, with a drop in existing home sales offset by a rise in new home sales. 

• Equities rose globally as economic growth continued to stay non-negative, along with hopes for an eventual peak in interest rates. Bonds fared positively in the U.S. as yields fell back from prior-week highs. Commodities gained due to specific supply/demand dynamics and continued waning recession fears. 

Economic Update 8-21-2023 

• Economic releases for the week included the index of leading economic indicators continuing its long-running decline. However, retail sales and industrial production surpassed expectations on the upside. Housing data was mixed, as were several regional manufacturing surveys. 

• Stocks saw negative returns globally, with interest rates rising and concerns over the Chinese economy dominating sentiment. Bonds declined due to the direct impact of those rising yields. Commodities fell due to currency effects and demand concerns in oil and metals. 

Economic Update 8-14-2023 

• Economic data for the week included consumer price inflation coming in at a continued decelerated pace, as were producer prices to a slightly lesser degree. Jobless claims rose modestly, with no major recent change. 

• Equities were mixed to lower last week, as interest rates rose and summer trading volumes remained low. Bonds fell back as well, due to the duration impact of rates. Commodities were mixed, with oil prices inching up slightly in a continuation of tighter supply conditions. 

Economic Update 7-31-2023 

• Economic news for the week included the U.S. Federal Reserve raising interest rates by another quarter percent, Q2 GDP growth that came in stronger than expected, as did durable goods orders and consumer sentiment. 

• Global equities gained for the week, with positive economic news and improved inflation readings. Bonds were generally negative, as interest rates ticked higher along with central bank hawkishness about potential future hikes. Commodities were mixed, with oil prices up 5%. 

U.S. stocks ended the week mixed to higher, with a bit uncertainty in direction following the Fed’s decision to raise rates, strong U.S. GDP growth, durable goods and consumer sentiment results that defy worries about a potential recession, as well as decent corporate earnings and falling PCE inflation. The S&P 500 has risen by 30% from a low point in October, now well above the closely-watched 50-day and 200-day moving averages. From a technical standpoint, this represents a bull market. However, other technical signals, such as near-term relative strength, point to a potentially overbought condition. This isn’t unusual, nor would be a short-term pullback at this point (just to keep expectations in check). 

The Federal Reserve Open Market Committee raised the Fed funds rate today by 0.25% to a new range of 5.25-5.50%. The vote was unanimous. Starting from zero in March 2022, this 11th hike continued the quickest and strongest hiking pace since the early 1980s. The formal statement was minimally changed, with economic activity upgraded from ‘modest’ to ‘moderate.’ 

Today’s move was well-telegraphed, with Fed funds futures¹ market odds steadily rising from 80% to 99% in the past month. Though, with the recent deceleration in inflation, odds of another hike after today have fallen, in Dec. 2023, with just over a one-half chance of staying at 5.25-5.50% and one-third chance of another 0.25%. Next year remains a different story, with June 2024 showing 4.75-5.00% and December at 4.00-4.25%. While those rate assumptions are higher than a month ago, the large assumed decline in 2024 reflects strong Fed easing in response to nothing short of a recession, as well as continued downward inflation progress. 

Economic Update 7-24-2023 

• Economic data for the week included the index of leading economic indicators continuing a long stretch of declines, pointing to ongoing recession risks. Industrial production and retail sales slowed, as did sales and starts in the housing sector. 

• U.S. stocks saw gains last week, coupled with mixed results abroad. Bonds were little changed in the U.S. with a stable yield curve, while foreign bonds suffered from a weaker dollar. Commodities were also mixed, with gains in energy offset by weaker prices for industrial metals. 

U.S. stocks were mixed last week, with continued positive sentiment from the prior week’s better inflation readings and optimism about potential avoidance of a recession—seen by improved outlooks from some prominent economists. However, in earnings season, results are often stock-specific. Growth sectors ended in the negative, in contrast to recent strength, while value names gained over 2%. Small cap stocks outperformed large caps, to make up some of their lost ground in 2023, with some investors acknowledging their multi-year valuation discounts relative to larger companies. By sector, gains were had in energy and financials (for example, better than expected earnings for some firms, and Charles Schwab losing deposits at a slower rate than feared) as well as more defensive sectors health care and utilities. On the negative side, communications (Alphabet/Google) and consumer discretionary (Amazon and Tesla) each fell -2% to -3%. The reconfiguring of the Nasdaq 100 today (along with its popular tracking funds like the QQQ) will serve to trim weightings from the largest seven firms, while boosting the relative sizes of the rest, which may have also influenced some pre-emptive trading. 

Economic Update 7-18-2023 

• Economic data for the week included producer and consumer price inflation continuing to decelerate—and even more so than expectations. Consumer sentiment also improved to the highest point in several years. 

• Global equities gained last week on the back of the improving U.S. inflation data. Bonds also gained along with the retreat in interest rates. Commodities rose with help from a weaker dollar. 

In the midst of slower summer volume, U.S. stocks gained last week, as falling consumer and producer inflation boosted investor spirits. The key factor, of course, is the impact on the economy, as well as the lower probability of the Fed’s continued hawkish rate hike path. Every sector ended in the positive last week, with communications and consumer discretionary leading the way, and energy and consumer staples coming up in the rear, with lesser gains. Real estate fared positively, up nearly 3%, as interest rates fell back. Earnings season began Friday, with several large banks showing mixed results for the quarter. 

Economic Update 7-10-2023 

• In a holiday-shortened week, economic releases included the mixed results of ISM manufacturing falling further into contraction, while ISM services rose further into expansion. The employment situation report showed positive jobs growth, but at a slower rate than expected, to cap a week of mixed labor data generally. 

• Equities fell globally last week, with expectations for more hawkish central bank policy and associated higher interest rates for longer, following not-terrible economic data. Bonds fell back along with higher assumed rates. Commodities were up slightly, led by production cuts in crude oil that boosted prices.