Markets This Week, 6/26-6/30, 2023: Adding Fuel to the Fire

Economy and Markets: The Week Ahead

The main focus of investors this week will be the economic reports, including Core PCE (the Fed’s main inflation gauge), which help shape expectations about the Federal Reserve’s July rates meeting. Although Powell as much as declared July’s rate hike, it is far from being a done deal, as there’s enough time for economic and financial surprises before he makes his next decree.

Another important report that Wall Street will be watching closely this week is the outcome of the banks’ stress tests, conducted by the Fed. The tests are aimed at determining banks’ resilience in different financial situations. The stress tests are usually closely watched by analysts and investors since their outcome determines the needed levels of liquidity and capital they should hold. That, in turn, affects how much money banks will have left over for dividends and stock buybacks. This year’s tests are especially important, because of the failures of three banks earlier this year; the Fed will study the effects of rising interest rates on bank security portfolios. Therefore, the result of the test is likely to affect the stance of the Fed’s monetary policy to a certain extent since the banks are the core of the country’s financial stability.

Apart from the economic reports, the stocks related to Artificial Intelligence technology will be in focus after last week’s stumble. Analysts and strategists agree that AI optimism has been the main driver of the stock market rally this quarter, as stocks unrelated to the AI narrative are up in the low single digits for the year at best. The divergence is best seen in the S&P 500’s (SPX) sectors: while the IT sector is up over 38% year-to-date, the Consumer Staples sector – which is supposed to provide a safe haven in the economic downturn – is down 0.6%. Furthermore, the Energy sector is at a loss of 11.5% despite the jump in oil prices earlier this year.

Thus, market participants will be closely watching AI-related stocks to see whether last week’s decline was just a stumble, or whether the momentum is genuinely fading on cooling sentiment under the weight of further rate-hike prospects. Meanwhile, in this uncertain environment, investors are advised to base their decisions on trustworthy data and analysis.

Equities – Last Week’s Performance

The main U.S. indexes closed the week with their largest weekly drop since March, after Powell’s remarks and the moves by some of the world’s main central banks further raised prospects of a global recession.

Federal Reserve Chair Jerome Powell, in his testimony before Congress, said that the Fed would likely need to raise the interest rate two more times before the end of the year. This past week, there were rate hikes by the Bank of England and the Swiss National Bank; the ECB and the Bank of Canada lifted their rates earlier this month. There is a growing concern that central banks around the world will be forced to continue raising rates to curb stubborn inflation, pushing economies into sharp downturns. Weak economic data from the Eurozone and China, as well as a sharper decline in U.S. manufacturing activity, upheld the view of the weakening global economy.

The S&P 500 (SPX) fell 1.84% on the week, the Nasdaq Composite (NDAQ) dropped 2.05%, the Nasdaq 100 (NDX) declined 1.94%, and the Dow Jones Industrial Average (DJIA) lost 2.08%.

All the S&P 500’s sectors except Health Care were in the red for the week. Although the biggest loser was the Real Estate sector with a 4.1% weekly drop, the casualties that drew the most attention were the stocks that previously surged on the Artificial Intelligence story, specifically the chipmakers like Nvidia (NVDA), Broadcom (AVGO), Advanced Micro Devices (AMD), Qualcomm (QCOM), and Intel (INTC). Investors, spooked by the prospects of further rate hikes and the possibility of a recession, decided to take profits from the strong rally in these stocks.

Upcoming Earnings and Dividend Announcements

The Q1 2023 reporting season has ended, but some important reports are still coming out this week from companies whose fiscal year is shaped differently.

The most anticipated releases this week include Walgreens Boots Alliance (WBA), General Mills (GIS), Micron Technology (MU), Nike (NKE), and Constellation Brands (STZ).

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 ConocoPhillips (COP), Danaher (DHR), Deere (DE), Humana (HUM), Air Products and Chemicals (APD), Cardinal Health (CAH), 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 Tuesday, we’ll have a deluge of reports, with May’s Durable Goods Orders, April’s Housing Price Index, June’s Consumer Confidence, May’s New Home Sales, and June’s Richmond Fed Manufacturing Index published on that day.

» On Wednesday, we’ll see published a very important report on the results of the Bank Stress Test, conducted by the Fed.

» On Thursday, we’ll receive the final assessment of Q1 2023 GDP Growth Annualized.  

» On Friday, we’ll see published June’s Chicago PMI and Michigan Consumer Sentiment Index, as well as May’s Personal Income and Personal Spending Data. But most of the attention will be drawn to the report on May’s Core Personal Consumption Expenditures (Core PCE), the Fed’s preferred inflation gauge.

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

The U.S.

» Initial Jobless Claims for the week ending June 16^th came in at 264K versus the expected 260K. Continuing Jobless Claims for the week ending June 9^th were at 1.759M, lower than the expected 1.782M.

» May’s Chicago Fed National Activity Index (CFNAI) unexpectedly dropped to -0.15 from April’s +0.14, it was forecasted to decline to 0.

» June’s S&P Global Manufacturing PMI (preliminary) fell to 46.3 from May’s 48.4, its lowest since December 2022, signaling a deepening of manufacturing recession.  

» June’s S&P Global Services PMI (preliminary) declined to 54.1 from May’s 54.9.

China

» The People’s Bank of China has lowered its main interest rates, its first rate cut in 10 months, in a bid to bolster faltering economic growth. The PBoC cut its one-year loan prime rate (LPR) from 3.65% to 3.55% and lowered the five-year rate from 4.3% to 4.2%.

The U.K.

» The Bank of England ECB increased its key interest rate by 0.5% to 5%, its 13^th consecutive rise since December 2021. The BoE’s move comes on the back of the still-hot inflation, which came in at an annual rate of 8.7% in May.