Stocks Advance Along With Positive Economic Surprises

July 17, 2023

Market Data as of Week Ending: 7/14/2023 unless noted otherwise

Major U.S. stock indexes recovered and finished the week with gains as investors responded favorably to positive economic surprises. Several of the largest banks reported second-quarter results, and despite recent turmoil, the health of these financial institutions remains solid with no clear signs of an imminent recession. Growth stocks rotated back into favor and outperformed their value counterparts, and smaller companies were the best performing compared to their mid and large-sized peers. All major economic sectors were positive, with notable gains in the consumer discretionary and communication services sectors. Energy stocks lagged and were up less than 1%, despite rising oil prices and mostly favorable economic data. Both developed foreign and emerging markets stocks outperformed, benefiting from a weaker U.S. dollar.

U.S. Treasury yields have been volatile and ended the week lower on better than expected inflation data. The yield on the 2-year note ended the week lower at 4.74%, while the 10-year Treasury yield dropped below 4% and finished at 3.83%. All segments across the curve were positive, with notable gains in long duration corporate and government bonds. Yields for investment grade corporate bonds and high yield bonds declined and ended the week at 5.5% and 8.4%, respectively.

Economic data was mostly favorable led by inflation data coming in better than expected. Both the monthly CPI and core (excluding food and energy prices) inflation increased 0.2% in June. That was the first monthly Core CPI reading below 0.3% in nearly two years. Headline CPI increased 3% compared to the same period one year, the lowest increase since March 2021. Producer Price Inflation (PPI) also came in better than expected on Thursday with both headline and core figures up only 0.10% for the month of June. The University of Michigan’s consumer sentiment index surged to 72.6, its highest level in nearly two years and the largest monthly increase since 2006. The sharp advance was attributed to better labor market conditions and falling inflation, according to surveyed consumers. Wage growth remains firm in the UK, with the most recent figures up more than 7%, despite a small increase in unemployment, up to 4%.

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