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THIS WEEK'S UPDATE

| August 07, 2023

The Week On Wall Street
Stocks retreated last week as bond yields increased following the Treasury's announcement indicating “a larger-than-expected funding need” and a downgrade in the federal government’s debt rating. The Dow Jones Industrial Average dropped 1.11%, while the Standard & Poor’s 500 shed 2.27%. The Nasdaq Composite index lost 2.85% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, tumbled 3.27%.
 
Stocks Struggle
Stocks struggled as investor sentiment turned cautious amid rising bond yields. Markets were rattled initially by news that the Treasury raised its borrowing requirement for the third quarter by more than a quarter of a trillion dollars and on news that the Bank of Japan announced it would allow bond yields to rise after years of capping them.  Rising yields continued to pressure stocks in the wake of a surprise rating downgrade of U.S. government debt by a major credit rating agency due to its belief in expected fiscal deterioration over the next three years. Stocks rebounded Friday morning, rising on modest employment data only to reverse and add to the week’s losses.
 
Mixed Signals from the Labor Market
Fresh employment data last week gave some conflicting signals about the labor market. A new JOLTS (Job Openings and Turnover Survey) report showed a small decline in job openings and layoffs in June, leaving 1.6 job openings for each available worker. Automated Data Processing’s (ADP) employment report reflected strong private sector hiring with a 324,000 increase in jobs, exceeding the consensus forecast of a 175,000 gain. The government’s monthly employment report saw a cooling in hiring as employers added 187,000 jobs in July. This was slower than seen in the first six months but enough to shave the unemployment rate from 3.6% to 3.5%.
 
This Week: Key Economic Data
Thursday: Consumer Price Index (CPI). Jobless Claims
Friday: Producer Price Index (PPI). Consumer Sentiment
 
This Week: Companies Reporting Earnings
Monday: Skyworks Solutions, Inc. (SWKS)
Tuesday: Eli Lilly and Company (LLY), Duke Energy Corporation (DUK), United Parcel Service, Inc. (UPS), ONEOK, Inc. (OKE)
Wednesday: The Walt Disney Company (DIS)
 
Final Thoughts
Well, the pundits have been wrong about the market this year as it has rallied back a tremendous amount.  No, we aren’t back to all time highs yet, but we are a lot closer than we were in January.  So, what’s next?  We are entering the seasonally weak months of August and September.  The market had a strong run, so some sort of respite here and modest correction wouldn’t be out of the realm of normalcy.  I don’t think the wheels are coming off and you don’t have a terrible recession with unemployment as low as it is.  Maybe next year, but not right at this moment.
 
Earnings have come in fairly good, so far with about 85% of the S&P 500 reporting already.  Once we get through earnings season the market will trade on news and sentiment which is generally negative.  Again, I’d expect a little pullback before heading into the 4th quarter.
 
In the very near term CPI comes out Thursday, which is bound to move the market.  We should still show signs of cooling inflation.  This means disinflation, NOT deflation.  Disinflation means the pace of rising prices is slowing, but they are still rising.  Deflation is the outright decline in prices.  I wouldn’t expect that anytime soon.
 
School is starting back up.  Fun times.  Make it a great week!