With a light news week, at least economically speaking, and markets largely moving sideways, we are changing this week’s recap, providing a series of quick hits and interesting tidbits we’ve encountered over the last few weeks. We hope you enjoy it!
Lower Inflation Expectations. Based on the N.Y. Fed’s Survey of Consumer Expectations, one-year expected inflation dropped from 3.83% to 3.55%, the lowest since April 2021. Current expectations are just 0.17 percentage points (ppts) above the survey’s historical average reading of 3.38% (since 2013), but relative to the pre-COVID period, they’re still well above the historical average of 2.81%. (Source: New York Federal Reserve)
Less Pessimism. The Conference Board’s Index of CEO Confidence increased from 42 to 48 in Q3 and a post-Financial Crisis low of 32 in Q4 2022 (readings above 50 indicate net optimism). 84% of CEOs expect at least a shallow recession in the next 12-18 months, but despite the net pessimism, 40% of CEOs surveyed expect to ramp up hiring, and another 40% plan to maintain the size of their workforce. (Source Conference Board)
300 Days. August 23 marked the 300th day since the yield curve, measured by the spread between the yields on the 10-year and 3-month U.S. Treasuries, first turned negative (inverted) in the current cycle. Since 1962, the average time between the first inversion of the yield curve (with no other occurrences) in the prior year and the start of a recession was 589 days. (Source: Bespoke)
Leading to What? The Conference Board’s index of Leading Indicators declined for the 16th straight month in July, which ranks as the third longest streak of declines since 1960 and the longest since the 24 months leading up to and during the global financial crisis in 2008. Besides that, the only streak longer than the current one was the 22-month streak ending in March 1975. (Source: Conference Board)
Eating Out, Shopping In. In the July Retail Sales report, Non-Store (Online) sales accounted for 16.7% of total sales, while Bars and Restaurants accounted for 13.1%. Since 1992, there have only been two months where Non-Store accounted for a higher share of sales (April and May 2020), while Bars and Restaurants now account for a record share of total sales. (Source: Census Bureau)
Solar Still So Low. According to Energy Information Administration (EIA) data through June, solar energy consumption has doubled in the last three years, topping 50 terawatt hours (TWh) for the first time. Despite the surge, solar still accounts for just 2% of all U.S. energy consumption compared to coal, which still accounts for 8%. (Source: EIA)
No Love For Dividends. As the Fed has hiked rates above 5%, investors have been looking elsewhere besides the stock market for income-generating investment ideas. Through 8/9/2023, the 101 S&P 500 stocks that pay no dividends were up an average of 20.7% YTD, while the 100 highest-yielding stocks in the index were down 3.2% YTD. (Source: Bespoke)
Economy
- U.S. equity markets were mixed this week, with the S&P 500 up 0.8%, the Nasdaq up 2.3%, and the small-cap Russell 2000 down -0.3%. There was little in the way of new economic news, with markets meandering much of the week.
- Existing home sales in the U.S. dropped 2.2% from a month earlier to a seasonally adjusted annualized rate of 4.07 million units in July, following a 3.3% decline in June as high mortgage rates keep homeowners in place.
- The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) in the U.S. increased by 15 bps to 7.31% in the week ending August 18, 2023, the highest since December 2000.
- The S&P Global U.S. Composite PMI declined to 50.4 in August, falling short of market expectations of 52.0, according to a preliminary estimate. The latest reading indicated the weakest upturn in private sector activity since February, as a deepening contraction in the manufacturing sector was accompanied by slower growth in service sector output.
Stocks
- U.S. equities were in positive territory. Technology and Consumer Discretionary were the top performers, while Energy and Consumer Staples lagged. Growth stocks led value stocks, and large caps beat small caps.
- International equities closed higher for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield decreased 1 basis point to 4.24% during the week.
- Global bond markets were in positive territory this week.
- High-yield bonds led for the week, followed by corporate bonds and government bonds.
