Weekly Market Recap
August 6, 2023
Volume 10, Issue 32
The major domestic equity indices started August with a down week after closing out a strong July. Stocks declined amid rising Treasury yields and an unexpected downgrade to the U.S. government’s credit rating. The technology-heavy Nasdaq Composite suffered the largest losses for the week.
In a busy week for corporate earnings releases, trades were focused on results from mega-cap names Amazon and Apple, which reported earnings after markets closed on Thursday. Amazon significantly beat expectations, helped by strength in its core retail business, and the company’s stock rallied more than 9 percent at Friday’s open. Apple, meanwhile, traded down about 3 percent after a mixed report that showed strength in its services business, although iPhone sales disappointed.
On Tuesday, Fitch downgraded the credit rating of U.S. government debt from the highest level, AAA, to AA+, with the ratings agency saying its decision “reflects governance and medium-term fiscal challenges.” It was the first negative surprise that markets have had to deal with in some time, and some seemed to use the news as a good excuse to reduce riskier positions. S&P also has a AA+ rating on the U.S., following a downgrade in 2011.
The Labor Department’s closely watched monthly nonfarm payroll report, out Friday, showed that employers added 187,000 jobs in July, about the same as June’s downwardly revised 185,000. The past two months’ data, while still showing health in the labor market, point to a notable slowing from the first five months of the year when the economy added an average of 287,000 jobs a month. The unemployment rate ticked down to 3.5 percent from 3.6 percent the prior month, while wages grew 4.4 percent over the 12-month period, unchanged from June.
Earlier in the week, the Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics showed a modest drop in the number of job openings in June, although layoffs declined for a third straight month. ADP’s private employment survey was better than expected but did show hiring eased to 324,000 from 455,000 in June. In non-labor market news, the Institute for Supply Management manufacturing Purchasing Managers’ Index came in at 46.4, a bit lower than the 46.9 consensus and the ninth straight month under 50, the level that indicates contraction.
The yield on the benchmark 10-year U.S. Treasury note increased from 3.95 percent at the end of the previous week to almost 4.20 percent by early Friday but decreased to about 4.05 percent following the release of the jobs report. Expectations for higher levels of issuance by the Treasury Department seemed to help push yields higher earlier in the week.
A full listing of market performance data is available here.
DQYDJ.com (“Don’t Quit Your Day Job”) offers helpful investment calculators here, including one that shows total returns for individual stocks.
Koyfin.com provides reams of data on individual stocks, including the ability to track total return — and just about anything else — over time.
In the News
The U.S. this summer posted its two weakest months of job growth in two-and-a-half years. Nonfarm payrolls rose by 187,000 in July and a revised 185,000 in June, the Labor Department said Friday. By comparison, employers added an average of 399,000 jobs a month in 2022 and 287,000 a month through the first five months of this year. The slowdown in hiring likely reflects a cooling economy, a welcome development for Federal Reserve officials trying to get inflation down. But other metrics suggest that there is still plenty of demand for workers. Private-sector pay in July rose 4.4 percent from a year earlier, still well above pre-pandemic levels. The unemployment rate ticked lower and has been hovering near a half-century low. And the share of so-called prime-age workers (25 to 54 years old) with a job held steady at the highest level in more than two decades. The labor market appears to be coming into balance, but perhaps it isn’t all the way there yet.
Fitch Ratings downgraded the U.S. government’s credit rating weeks after President Biden and congressional Republicans came to the brink of a historic default, warning about the growing debt burden and political dysfunction in Washington. The downgrade, the first by a major ratings firm in more than a decade, is evidence that increasingly frequent political skirmishes over the U.S. government’s finances are clouding the outlook for the $25 trillion global market for U.S. Treasury paper. Fitch said that the downgrade reflects an “erosion of governance” in the U.S.
U.S. productivity, as measured by what a typical worker produces in a typical hour, grew at a seasonally adjusted 3.7 percent annual rate from the prior quarter. But don’t be too quick to proclaim a new era of efficiency. The second quarter’s numbers came on the heels of a 2.1 percent decline in the first quarter, a 1.6 percent increase in the fourth quarter last year and…well, you get the picture. Productivity figures, which have always been volatile, have been a complete mess since the pandemic hit.
The U.S. labor market is showing fresh signs of easing, with slowly falling job openings adding to signs that the Federal Reserve is making progress in cooling the economy and lowering inflation. Job openings declined by 34,000 to a seasonally adjusted 9.6 million in June from the prior month, the Labor Department announced Tuesday, the lowest level since April 2021. Layoffs held nearly steady at 1.5 million in June.
Charts of the Week
I found the following articles to be of note. Some may be of interest only to advisors while others are aimed more broadly. You may hit paywalls below; most can be overcome here.
- If this is a bad economy, please tell me what a good economy would look like (Noah Smith)
- 3 Things to Know About a Coming Wealth Planning Trap (Allison Bell)
- How to Read: Lots of Inputs and a Strong Filter (Morgan Housel)
- 4 Financial Tasks You Shouldn’t Put Off (Christine Benz)
This is the best thing I read last week. The loveliest. The sharpest. The coolest. The most emotional. The most terrifying. The most fun. The best tweet. Great writing and a powerful argument. If Mark Leibovich writes it, I’m reading it.
On average, those who gave a number believe they need about $1.27 million to retire comfortably. However, the average respondent who shared their retirement savings had just $89,300 in the bank, their 401(k), or other accounts.
An Italian teacher who was fired for being absent from work for 20 years has vowed to defend herself. The secondary school teacher, who specializes in history and philosophy, said she had documents to prove her story but told Repubblica newspaper: “Sorry, but right now I’m at the beach.”
*Securities and advisory services are offered through Madison Avenue Securities, LLC, a member of FINRA and SIPC, a registered investment advisor.
This report provides general information only and is based upon current public information we consider reliable. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures, or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment, or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Diversification does not guaranty against loss in declining markets.