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Economic Data Leads to Strong Quarter End
Equity markets finished the quarter on a positive note after a couple of optimistic economic data points. Global equities (represented by the MSCI All Country World Index) were up 2.0%, and domestic stocks (represented by the S&P 500 Index) were up 2.36%.
Growth Oriented Stocks
Through the end of June, market returns have largely been skewed toward growth-oriented stocks. As of Friday, the Russell 1000 growth was up 29.02% for the year while the Russell 1000 value was only up 5.12%. At the sector level, the difference between the best-performing sector this year (technology) and the worst-performing (utilities) was a staggering 46%.
Personal Consumption Expenditures Price Index
The May PCE (Personal Consumption Expenditures Price Index) was released last week and showed continued disinflation. For May, the total index was up 3.8% on an annual basis while the core metric (which excludes energy and food) was up 4.6%. The PCE index is calculated a little differently from CPI and is one of the primary measures that the Fed looks at for insight.
GDP
There was a revision announced last week to the Q1 2023 GDP figure. In the latest update, it was reported that Q1 growth was actually 2.0% on an annual basis, up from the 1.3% that was originally reported.
Treasury Yield
With both of these reports coming out, the 10-year Treasury yield rose up above 3.8%. Markets are now pricing in a high likelihood of the Fed raising interest rates another 0.25%. The most recent market-implied probability is above 86% of another rate hike.
Source: CME FedWatch Tool
Looking Ahead
In the week ahead there are three main items that we would keep an eye on from an economic standpoint. First, ISM manufacturing PMI will come out today. Second, the minutes from the June Fed meeting will be released on Wednesday. Lastly, the June jobs report will announce unemployment statistics on Friday. These will all give key insights into economic conditions and their directions.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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