Markets This Week, 7/03-7/07, 2023: Too Good to Be True?

Economy and Markets: The Week Ahead

The main focus of investors this week will be the minutes from the latest Federal Open Market Committee (FOMC) meeting held in June. Investors will look for clues with regards to the Fed’s policy outlook, as well as for the details about the vote split. Markets are now projecting that the Fed will resume hiking rates in July, with an almost 90% probability of a hike of 0.25%.

In addition, a number of very important economic reports will be published this week, including the job market data alongside the services and manufacturing PMIs. Surprises in these numbers can impact the Federal Reserve’s stance towards its further monetary policy.

In addition, after an outstanding second quarter in the stock markets, we are now entering the third part of the year with increased expectations and very rich valuations. The improving economic data and the bullish momentum in stocks have raised investors’ expectations of companies’ financial performance. While we are waiting for the reporting season to begin, market participants will be checking whether stocks are able to maintain their upward trend. Since markets are pricing in an “soft landing” as the worst outcome, any surprises in the economic reports will lead to increased volatility and sharp moves in stocks.

In this uncertain environment, investors are advised to base their decisions on trustworthy data and analysis.

Equities – Last Week’s Performance & Outlook

Stocks muddled through the week until Thursday, when the Federal Reserve’s bank stress tests’ results came out and gave the stock markets a jolt of optimism. Bank stocks led the gains after it was said that all of the nation’s 23 largest lenders cleared the annual exam. The results showed that showed that the banks can withstand a severe global recession and turmoil in real estate markets, which were this year’s themes of the checkup.

The rally was further supported by the large upgrade of the Q1 2023 GDP growth, as well as by the reports showing that despite the economy’s resilience, prices continued to ease. Markets were happy to see the PCE index decelerate from April; they brushed aside the fact that Core PCE, the Fed’s preferred measure of inflation which excludes volatile energy and food prices, didn’t decelerate as much as the headline number.

Bolstered by that optimism, Apple (AAPL) surged to new highs, becoming the only company ever to reach the $3 trillion market cap.

All the main U.S. indexes closed the week with strong gains. The S&P 500 (SPX) rose 2.08% on the week, notching its third consecutive quarter of growth, and the Dow Jones Industrial Average (DJIA) gained 1.96%. The Nasdaq Composite (NDAQ) increased 1.64%, closing its best first half of the year in 40 years. All the S&P 500’s sectors were up for the week.

Upcoming Earnings and Dividend Announcements

The Q1 2023 reporting season has ended, and markets are awaiting the start of the Q2 2023 season, which will begin in earnest in about two weeks with the large banks. However, some firms are already reporting their June quarter results. This week, we anticipate the report of Levi Strauss (LEVI); it will be closely watched by investors, after another large retailer, Nike (NKE) delivered mixed results last week.

Companies’ reporting dates, consensus EPS forecasts, past data, analyst ratings, and price targets can be found on the TipRanks Earnings Calendar.

This week, Ex-Dividend dates are coming for the payouts of Comcast (CMCSA), Cisco Systems (CSCO), JPMorgan Chase & Co. (JPM), American Express (AXP), AT&T (T), General Mills (GIS), and other dividend-paying firms.

Companies’ Ex-Dividend and Dividend Payment dates, analyst ratings, and price targets can be found on the TipRanks Dividend Calendar.

Upcoming Economic Calendar Events

There are several very important reports scheduled to be published in the next few days:

» On Monday, we’ll receive the final reading of June’s S&P Global Manufacturing PMI; on the same day, June’s ISM Manufacturing PMI will be published.

» On Wednesday, we’ll see published the Minutes of the Federal Open Market Committee (FOMC), providing a guide to the future U.S. interest rate policy.

» On Thursday, we’ll receive the readings on June’s S&P Global Services PMI and ISM Services PMI.

» On Friday, we’ll have a deluge of jobs-related reports, including June’s Nonfarm Payrolls, Unemployment Rate, Average Weekly Hours, and Average Hourly Wages.

Current and scheduled economic reports, Fed statements, and other releases, as well as their level of impact on stock markets, can be found on the TipRanks Economic Calendar.

Major Economic Events of the Past Week

» May’s Durable Goods Orders jumped 1.7%, a third straight monthly increase, from April’s 1.1% increase; they were expected to decline by 1%.

» April’s Housing Price Index rose 0.7% from March’s 0.6%; it was expected to rise by 0.3%.

» May’s New Home Sales surged 12.2%, their highest level since February 2022, versus the expected 0.5% increase and compared to April’s +3.5%.

» June’s Consumer Confidence Index increased to 109.7, its highest level since January 2022, from 102.5 in May; it was expected to rise to 104.0.

» Q1 2023 GDP Growth Annualized (final assessment) was sharply revised to 2% versus the previous estimate of 1.3%.

» May’s Personal Consumption Expenditures (PCE) rose 3.8% year-on-year, its slowest since April 2021 and much slower than the expected pace of 4.6%. However, Core Personal Consumption Expenditures (Core PCE) – the Fed’s preferred inflation gauge – rose at an annual rate of 4.6%, which, while slower than the expected 4.7%, was still high, underlining stickiness of the core inflation.

» May’s Personal Income rose 0.4% from April’s 0.3%, in line with expectations. Personal Spending rose 0.1% from April’s 0.6%.

» June’s Chicago PMI increased to 41.5 from May’s 40.4; it was expected to rise to 44.

» June’s Michigan Consumer Sentiment Index unexpectedly jumped to 64.4 from May’s 63.9.