Market Recap 6/30/2023

Well, the week got off to an interesting start with an open rebellion in Russia (maybe, possibly – it’s Russia, so who really knows?).  But whatever it’s called, it fizzled out almost as soon as it started, and global equities managed to put in an impressive showing for the week.  A combination of decent growth data and modestly better inflation numbers put equity investors in a buying mood ahead of the holiday shortened weekend.  Bond investors, on the other hand, weren’t excited about the prospect of more rate hikes to come, and pushed both short-term and long-term yields higher for the week.


A quick summary of the major economic numbers:


First Quarter Growth – better than we originally thought


The initial read on first quarter GDP came in at +1.3%.  It was revised to +2% this week on the back of stronger consumer spending.



Capital Spending – powering ahead


Monday’s report on durable goods orders was strong - +1.7% versus and expected decline of -0.9%.  This report measures how much is being spent on plant and equipment, aircraft, and military hardware.  Strip out transport and spending was up +0.6% versus expectations for no change.  


This is a long-running theme of businesses investing in capital equipment to improve efficiency given rising labor costs as well as money being spent on chip plants, domestic manufacturing, and renewable energy projects.


Weekly Jobless Claims – the recent increase was a head fake


Jobless claims fell by 26,000 in the latest week to 239,000, reversing all the move up that had occurred over the prior three weeks.  For all the talk about layoffs in the tech sector, we aren’t seeing it show up in the data in any meaningful way yet.



Inflation – moving in the right direction, but core prices are proving sticky


The Fed’s preferred gauge of consumer prices, the personal-consumption expenditures price index, rose +3.8% from a year earlier, down from +4.3% in April.  So-called core prices, which exclude volatile food and energy categories, rose +4.6% in May; little changed from the previous month.  




All in all, not a bad batch of statistics this week.  The much-predicted recession seems like a lower and lower probability this year, but the robust growth data combined with the still elevated core inflation number means the Fed is almost certain to hike rates again next month.  Two more quarter-point hikes are being priced in at the moment – money market yields are in all likelihood on their way to 5.5% by September.  


(Other) Charts We Found Interesting


  1. As noted above, another rate hike in July is all but a sure thing at the moment.



  1. It’s not often that T-bill yields exceed corporate bond yields.  Going back to 1934 there’s only been 33 months out of the nearly 1,100 where this has happened. 



  1. Rising rates have usually meant lower price-earnings ratios – this relationship has broken down this year (note that in the chart below interest rates on the right axes are inverted).    



  1. All the hype about China’s reopening (and China’s stock market) has been for naught – their economy is still struggling.  


A graph of blue lines on a black background

Description automatically generated with low confidence


  1. Every year British Petroleum publishes their forecast for the global energy markets.  They are almost certainly going to be wrong about oil consumption, but in which direction?


  1. No one can be quite sure that our investment in alternative energy means will use less fossil fuels,  The example of coal seems to support Jevons Paradox (an increase in efficiency in resource use will generate an increase in resource consumption rather than a decrease).



Jevon's Paradox - Sketchplanations


  1. On this day in 1905 a 25-year-old Einstein published his paper on special relativity (Zur Elektrodynamik bewegter Körper - On the Electrodynamics of Moving Bodies).  25!!!




Have a good weekend.


Charles Blankley
Chief Investment Officer
Gemmer Asset Management LLC


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