Stocks moved to the rhythm of earnings season last week, initially rising on positive earnings surprises and faltering later in the week on key earnings disappointments. The Dow Jones Industrial Average rose 2.08%, while the Standard & Poor’s 500 added 0.69%. The Nasdaq Composite Index slumped 0.57% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.32%.^1,2,3

Entering its first big week of the second quarter earnings season, solid reports from the nation’s big banks rewarded investor optimism, sparking a rally that continued into mid-week. An announcement by a mega-cap tech company of a new AI subscription plan, and stabilizing deposits at several regional banks, further fed investor enthusiasm. Disappointing earnings from two big-tech names dragged market indices lower on Thursday, with the largest losses in the Nasdaq composite. Despite the reversal, 20 stocks in the S&P 500 touched 52-week highs on Thursday, with 11 reaching all-time highs.⁴

June housing reports reminded investors that any emerging housing recovery remains shaky. After a massive 21.7% jump in housing starts in May, new home construction tumbled 8.0% in June, with building permits (an indicator of future home construction) dropping 3.7%.⁵ Sales of existing homes were also lower in June, declining by 3.3%, owing to a persistently low inventory level. This was the slowest pace since January. Year-over-year sales were lower by 18.9%. One reason for low inventory is that homeowners have been reluctant to sell homes on which many have a historically low mortgage rate and face buying a new home at elevated prices with a much higher mortgage interest rate.⁶

^{1.The Wall Street Journal, July 21, 2023, 2. The Wall Street Journal, July 21, 2023, 3. The Wall Street Journal, July 21, 2023, 4. CNBC, July 20, 2023, 5. Yahoo!Finance, July 19, 2023, 6. The Wall Street Journal, July 20, 2023}

Better-than-expected updates last week on consumer and wholesale price inflation buoyed investor sentiment, driving stocks higher and lower bond yields. The Dow Jones Industrial Average rose 2.29%, while the Standard & Poor’s 500 increased 2.42%. The Nasdaq Composite index advanced 3.32% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 4.67%.^1,2,3

Back-to-back positive inflation reports emboldened investors, sending stocks to their highest levels since April 2022. Lower-than-forecast inflation on both consumer prices and producer prices sparked investor optimism that inflation may be able to fall further without tipping the economy into recession and provide the basis for the Fed to moderate its more hawkish rate hike stance.⁴ After four straight days of increases, investor attention turned to the kick-off of a new earnings season on Friday. Despite some positive earnings surprises from several big banks and a major healthcare provider, stocks closed out a good week with a slight decline.

Inflation continued its downward trend last month, falling at its slowest pace in over two years. Consumer prices rose 0.2% in June and 3.0% from a year ago. Both were below economists’ consensus forecast. Core inflation (excludes food and energy), which has been more stubborn, fell to 4.8% year-over-year–its lowest level since October 2021.⁵ The positive disinflationary story continued the following day with a lighter-than-forecast increase in producer prices. Wholesale prices increased 0.1% in June, which was lower than the consensus forecast of 0.2%. The increase from a year ago was also 0.1%, representing the smallest gain in nearly three years. Core producer price rose 2.6% year-over-year^.6

^{1. The Wall Street Journal, July 14, 2023, 2. The Wall Street Journal, July 14, 2023, 3. The Wall Street Journal, July 14, 2023, 4. The Wall Street Journal, July 13, 2023, 5. The Wall Street Journal, July 12, 2023, 6. The Wall Street Journal, July 13, 2023}

Stocks posted gains for the week to close out a stellar month, aided by positive economic data and reports that all major banks had passed the Federal Reserve’s annual stress test. The Dow Jones Industrial Average gained 2.02%, while the Standard & Poor’s 500 rose 2.35%. The Nasdaq Composite index added 2.19%. The MSCI EAFE index, which tracks developed overseas stock markets, increased by 0.76%.^1,2,3

Investors shrugged off weekend news of a short-lived insurrection in Russia and calls later in the week for more restrictive monetary policies from global central bankers. What powered early-week gains? New home sales, durable goods orders, and a rise in consumer confidence proved influential. More so were Thursday’s reports of a drop in initial jobless claims and an upward revision in first quarter Gross Domestic Product growth, which helped allay recession fears. The results of the Fed’s annual bank stress tests, which all major banks passed–further emboldened investors. Stock prices rallied Friday following an encouraging inflation report, capping the end to a solid week, month, and first half.

At last week’s European Central Bank Forum, central-bank governors from around the world gathered to discuss their monetary outlook and the policies needed to manage inflation amid unexpected economic strength. Fed Chair Powell reiterated that more rate hikes were coming owing to a robust labor market. He added that he wouldn’t dismiss the idea of hiking rates at consecutive Federal Open Market Committee (FOMC) meetings. While saying there is a possibility of an economic downturn, Powell didn’t believe it was the most likely case. Meanwhile, bankers from the European Central Bank and the U.K. echoed Powell’s comments, declaring that further rate hikes are needed to tame their still-elevated inflation rates.⁴

<sup>1.The Wall Street Journal, June 30, 2023.
2. The Wall Street Journal, June 30, 2023.
3. The Wall Street Journal, June 30, 2023.
4. CNBC, June 28, 2023.</sup>

Stocks took a breather last week as investors digested the previous week’s surge and the month-to-date solid gains. The Dow Jones Industrial Average lost 1.67%, while the Standard & Poor’s 500 fell 1.39%. The Nasdaq Composite index dropped 1.44% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, tumbled 2.00%.^1,2,3

The stock market drifted lower last week as the tug-of-war between bulls and bears played out in a week that was light on market-moving news. After falling in the first days of a holiday-shortened trading week, stocks rebounded on Thursday to recover some of the week’s losses. Stocks looked past Congressional testimony by Fed Chair Powell, who said two more rate hikes are likely in the wake of interest rate hikes by central bankers in the U.K., Switzerland, Norway, and Turkey. The retreat continued into Friday, fueled by global growth fears from new economic data indicating more robust economic slowdowns in the eurozone, Japan, and Australia.

Home builders’ confidence edged into positive territory for the first time in 11 months, aided by strong demand, low inventory, and a recovering supply chain. May’s new home sales, which rose 21.7%–the most significant percentage gain since October 2016, validated this confidence. The number of new home starts in May (1.63 million) hit a 13-month high, with both single- and multi-family homes up substantially.^4,5 Sales of existing homes in May rose 0.2% month-over-month while declining 20.4% from a year ago. The existing home market continues to suffer from low inventory and still-high prices. The median price of a home sold in May declined 3.1% year-over-year to $396,100.⁶

^{1.The Wall Street Journal, June 23, 2023, 2. The Wall Street Journal, June 23, 2023, 3. The Wall Street Journal, June 23, 2023, 4. National Association of Home Builders, June 19, 2023, 5. Reuters, June 20, 2023, 6. CNBC, June 22, 2023}

A late-week rally sent stocks into positive territory, with the S&P 500 index closing just shy of the 4,300 mark. The Dow Jones Industrial Average gained 0.34%, while the Standard & Poor’s 500 added 0.39%. The Nasdaq Composite index improved 0.14% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 0.44%.^1,2,3

Stocks bumped along the flatline for much of the week ahead of this week’s two inflation reports and the June meeting of the Federal Open Market Committee. Amid little news, stocks drifted lower to start the week until Wednesday, when a solid early-day rally evaporated on news of the Bank of Canada’s surprise interest rate hike. Stocks rose again the following day, holding onto their gains, with the S&P 500 hitting a new closing high for 2023.⁴ Stocks added small gains on Friday after weathering some midday weakness, leaving major indices marginally higher for the week.

One investor concern has been that a handful of mega-cap stocks have driven recent market returns. Last week’s market bucked that trend, with outperformance in small-cap stocks and equally-weighted stock market indices. For instance, the Russell 2000 index (which measures the performance of 2,000 smaller-cap companies) rose 1.90% this week, outpacing the S&P 500 and the technology-heavy Nasdaq.⁵ Another example of broadening performance was the outperformance of the equally-weighted S&P 500 index, where each stock has equal weighting regardless of size, versus the market-cap S&P 500 index, where mega-cap companies disproportionately impact index performance. Last week’s return of the equally-weighted S&P 500 index exceeded the cap-weighted S&P 500’s return by 0.65%.⁶

^{1. The Wall Street Journal, June 9, 2023, 2. The Wall Street Journal, June 9, 2023, 3. The Wall Street Journal, June 9, 2023, 4. CNBC, June 8, 2023, 5. The Wall Street Journal, June 8, 2023, 6. Google Finance, June 9, 2023}