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. 

U.S. stocks were mixed during the week, with lighter summer volumes coming along with the contrasting news of flatter inflation coupled with higher interest rates. By sector, energy gained over 3%, followed by health care, which was helped by drug-related news, with defensives generally faring better than cyclicals. Technology fell back nearly -3%, bucking recent strong trends. Financials were mixed as well, as several smaller banks received credit downgrades, which affected the small cap value market specifically. 

Earnings for Q2 have almost been wrapped up, with initial expectations of a -9% year-over-year earnings decline now having improved to ‘only’ -4%. Revenues saw 1% growth, with nearly -1% in profit margin contraction proving to explain much of that gap. For the balance of 2023 and into 2024, the level of oil prices, which translates into energy company earnings, may be what tips the balance of a weak and strong recovery. As of the prior week, the largest 10 stocks in the S&P 500 have accounted for 90% of the index’s year-to-date gains; this remains narrow, but broader than returns were several months ago. 

Foreign stocks were also mixed, with little change on net for the week in developed market indices, while emerging markets declined nearly -2%. While most EM nations lost similar ground, China lagged with the sharpest declines in the -4% range. In a continuation of their current woes, Chinese producer and consumer price readings have now moved into deflation on a year-over-year basis, which served to heighten investor concerns about the potential ability for the government to inject sufficient stimulus to get things back on track. Imports and exports are also both down in the double digits from a year ago, adding to these worries. 

Bonds had a negative week as interest rates ticked higher, along with reports showing current inflation not falling as quickly as hoped—keeping the chances of another Fed hike in play. Only floating rate bank loans and high yield escaped with positive returns. Higher supplies of new issues have also weighed on prices, causing yields to adjust higher as of late. Foreign bonds were held back by a sharp rise in the U.S. dollar. 

Commodities were little changed on net, despite the strong dollar for the week which is often a headwind. Slightly higher prices for grains and energy were offset by drops in both industrial and precious metals. Base metals have been notably week, especially copper, along with continued-weak manufacturing demand (in contrast to strong services), specifically in China. Crude oil rose a fraction of a percent last week to $83/barrel, as the number of oil rigs continued to fall back (total U.S. rigs are down significantly since the start of the pandemic). After a challenging year, where oil prices have been pulled down by fears of slower demand related to a potential recession, a recent stealthy price surge of nearly 20% in the last three months has come in response to these supply worries.  

Period ending 8/11/2023	1 Week %	YTD %
DJIA	0.69	7.78
S&P 500	-0.27	17.43
NASDAQ	-1.87	31.04
Russell 2000	-1.62	10.29
MSCI-EAFE	-0.56	11.75
MSCI-EM	-1.94	6.29
Bloomberg U.S. Aggregate	-0.64	0.64

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2022	4.42	4.41	3.99	3.88	3.97
8/4/2023	5.54	4.78	4.15	4.05	4.21
8/11/2023	5.54	4.89	4.31	4.16	4.27

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                    

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.