Good Life Advisors – Talking Points – Week 30   

Soft Landing…Maybe

This week’s data strongly supported the soft landing narrative: Consumer Confidence – better than expected (117 vs 110), GDP- better than expected (2.6% vs 2%), PCE, the Feds preferred inflation gauge – better than expected. The data coming out now is not showing an imminent recession. That doesn’t mean it can’t happen, but it’s not happening now.

US equities were higher this week, though the S&P retreated after topping 4600 on Thursday. The DJIA also notched a record-tying 13th consecutive gain on Wednesday before Thursday’s dip broke the streak. Earnings were a big factor in the week’s price action, with 166 S&P 500 constituents reporting.

Big tech was mostly stronger, especially META +10.6% and GOOGL +10.5% after earnings. SemischemicalsE&Psroad/railcontainerboardmediaregional banksP&C insurersdepartment stores, and cruise lines were among the other outperformers. Laggards included airlinesdefensehospitalsmanaged carehealthcare distributorswasteag machineryrestaurants, and telecom.

Treasuries were weaker, with the curve steepening. Thursday saw a big yield backup, with the 10Y moving above 4% before retreating on Friday. The dollar gained for a second straight week, with yen strength as the big story in FX amid the BoJ’s expanded flexibility with its yield-curve control approach. Gold was down 0.3% after three straight weeks of gains. Oil was higher, with +4.6%, and logging its fifth-straight weekly rise.

At its July meeting this week, the Fed voted to hike rates by 25bp to 5.25-5.50%, as had been widely expected. The meeting offered nothing in terms of surprises. A big question on the market’s mind has been whether the Fed may continue to hike or if it has reached the cycle peak. However, neither the little-changed statement nor Chair Powell’s remarks offered any significant hints about upcoming meetings. Powell repeated that the Fed will approach its decisions in a data-dependent manner and that no plans have been made yet about September. Analysts saw Powell’s statements as preserving the Fed’s optionality even as the chair voiced some optimism about the economic backdrop (noting, for instance, that Fed staff members are no longer forecasting a recession).

Another major factor this week was the surge in Q2 earnings reports, representing 166 S&P companies and including some of the largest firms, including GOOGL +10.5%, MSFT (1.6%), and META +10.6%. More than half of the S&P has now reported, with 80% of reporters showing a positive EPS surprise (better than the five- and 10-year averages) while 64% logging a positive revenue surprise. The blended earnings rate for the S&P stands at (7.3%), a bit worse than the (7.0%) expected at the end of the quarter. However, the magnitude of surprises has run somewhat below trend, with an aggregate reported earnings coming in ~5.9% ahead of forecasts vs the five-year average surprise rate of 8.4% and the ten-year average of 6.4%. The broad themes of this season’s reports include continued consumer resilience, the building disinflation wave, and reports of some loosening of the labor market. There have also been further reports on improving breadth in forward-looking earnings revisions.

Continued economic surprise momentum was another major thread in the market’s conversation, reinforcing the soft-landing narrative but also holding open the possibility the Fed could vote for further hikes this year. The disinflationary narrative continued with June core PCE inflation printing at 0.2% m/m, down from May’s pace and up 4.1% y/y (the softest annual reading since September 2021). But at the same time, Q2 GDP came in at a 2.4% SAAR, well ahead of the 1.5% consensus and in part reflecting robust consumer spending. July’s consumer confidence report printed at its highest headline level since mid-2021, with respondents increasingly optimistic about the labor market. Weekly initial and continuing jobless claims were both below forecasts. Headline durable-goods orders for June were also better, including for core capital goods orders. One of the few misses this week was in the June new-home sales report, which also saw a downward revision to May’s numbers.

Ultimately, many of this week’s positive market themes came with caveats. The S&P touched its highest point since March 2022, but there were also concerns that stretched valuations are creating somewhat fragile conditions. The Fed made what many analysts believe could be the final hike of its 16-month, 525bp tightening campaign, but Chair Powell left the committee’s options open. The week’s economic reports showed underlying strength coupled with growing disinflation traction, contributing to the soft-landing narrative, but a too-strong economy could bring additional interest-rate actions, and there is rising concern about the negative impacts of disinflation on corporate earnings. All in all, it was a positive week for the bulls that still left the bears with multiple arguments.

The high volume of Q2 earnings reports will continue next week, with 170 S&P constituents included on the schedule. It will also be another big week on the economic front. Tuesday will see July ISM manufacturing and the June JOLTS report; Wednesday will have July ADP employment; Thursday will bring weekly jobless claims and ISM Services. The capstone will be next Friday’s July nonfarm payrolls report, currently expected to see 200K in job growth with the unemployment rate remaining firm at 3.6%.



Fixed Income

Yield Curve


May FOMC Statement   March Fed Minutes     Balance Sheet Reduction Plan       Credit, Liquidity and Balance Sheet     Federal Reserve Dot Plots yields    FOMC Policy Normalization Statement     Longer- Run Goals Jan 2022


Foreign Exchange Market

Energy Complex

The Baker Hughes rig count was down 5 this week. There are 664 oil and gas rigs operating in the US – Down 103 from last year. 

Metals Complex

Employment Picture 

Weekly Unemployment ClaimsReleased 7/27/2023 – In the week ending July 22, the advance figure for seasonally adjusted initial claims was 221,000 decreasing 7,000 from the previous week’s revised level. The 4-week moving average was 233,750 a decrease of 3,750 from the previous week’s revised average.

June Jobs Report – BLS Summary – Released 7/7/2023 – The US Economy added 209k nonfarm jobs in June and the Unemployment rate was little changed at 3.6%. Average hourly earnings increased 12 cents to $33.58.  Hiring highlights include +21k Leisure and Hospitality, +23k Construction, +73k Education and Health Services, +60 Government, and +21k Professional and Business Services.

  • Average hourly earnings increased 12 cents/0.4% to $33.58.
  • U3 unemployment rate decreased 0.1% to 3.6%. U6 unemployment rate increased 0.2% to 6.9%.
  • The labor force participation rate was unchanged at 62.6%.
  • Average work week increased 0.1 hours to 34.4 hours.

Job Openings & Labor Turnover Survey JOLTS – Released 7/6/2023 – The number of job openings decreased to 9.8 million on the last business day of May, the U.S. Bureau of Labor Statistics reported. Over the month the number of hires and total separations changed little at 6.2 million and 5.9 million, respectively. Within separations, quits (4.0 million) increased and discharges (1.6 million) changed little.

Employment Cost Index – Released 4/28/2023  Compensation costs for civilian workers increased 1.2% for the 3-month period ending in March 2023. The 12-month period ending in March 2023 saw compensation costs increase by 4.8. The 12-month period ending March 2022 increased 4.5%. Wages and salaries increased 5.0 percent over the 12-month March 2023 and increased 4.7 percent for the 12-month period ending in March 2022. Benefit costs increased 4.5 percent over the 12-month period ending March 2023 and increased 4.1 percent for the 12-month period ending in March 2022. This report is published quarterly.


This Week’s Economic Data

Links take you to the data source  

Personal Income – Released 7/28/2023 – Personal income increased $69.5 billion (0.3 percent at a monthly rate) in June. Disposable personal income (DPI) increased $67.5 billion (0.3 percent). Personal consumption expenditures (PCE) increased $100.4 billion (0.5 percent).

Advance Estimate of 2nd Quarter 2023 GDP  Released 7/27/2023 – Real gross domestic product (GDP) increased at an annual rate of 2.4 percent in the second quarter of 2023, according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.0 percent. The GDP estimate released today is based on source data that are incomplete or subject to further revision. The increase in real GDP reflected increases in consumer spending, nonresidential fixed investment, state and local government spending, private inventory investment, and federal government spending that were partly offset by decreases in exports and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

Durable Goods – Released 7/27/2023 – New orders for manufactured durable goods in June, up four consecutive months, increased $13.6 billion or 4.7 percent to $302.5 billion, the U.S. Census Bureau announced today. This followed a 2.0 percent May increase. Excluding transportation, new orders increased 0.6 percent. Excluding defense, new orders increased 6.2 percent. Transportation equipment, also up four consecutive months, drove the increase, $12.4 billion or 12.1 percent to $115.3 billion.  

New Residential Sales – Released 7/26/2023 – Sales of new single‐family houses in June 2023 were at a seasonally adjusted annual rate of 697,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 2.5 percent below the revised May rate of 715,000 but is 23.8 percent above the June 2022 estimate of 563,000. The median sales price of new houses sold in June 2023 was $415,400.  The average sales price was $494,700.  At the end of June, the seasonally adjusted estimate of new homes for sale was 432,000, a supply of 7.4 months at the current sales rate.

Consumer Confidence Released 7/25/2023 – Consumer Confidence increased in July to 117.0, up from 110.1 in June. Consumer confidence improved in July to its highest level since July 2021, reflecting improved current conditions and an improvement in expectations.

Recent Economic Data

Links take you to the data source 

Existing Home SalesReleased 7/20/2023 – June 2023 brought 4.16 million in sales, a decrease of 3.3% from May. The median sales price was $410,200. The current unsold housing inventory was 3.1 months of inventory.

Housing Starts – Released 7/19/2023 – June housing starts came in at 1,434,000, 8.0% below the May estimate and 8.1% below the June 2022 rate. Building permits were 3.7% below the May rate at $1,440,000 and 15.3% below the June 2022 rate.

Industrial Production and Capacity Utilization – Released 7/18/2023  Industrial production decreased 0.5% in June for the second consecutive month. Utilities output fell 2.6%. Manufacturing decreased 0.3%. Mining fell 0.2%. Capacity utilization declined to 78.9% in June, 0.8% below the long-run average.

Retail Sales – Released 7/18/2023  Headline retail sales increased 0.2% in June and are up 1.5% above June 2022.  

Producer Price Index – Released 7/13/2023 – The Producer Price Index for final demand increased 0.1 percent in June, seasonally adjusted. Final demand prices declined 0.4 percent in May and increased 0.1 in April. On an unadjusted basis, the index for final demand moved up 0.1 percent for the 12 months ended in June.

Consumer Price Index – Released 7/12/2023 – The Consumer Price Index for All Urban Consumers rose 0.2 percent in June on a seasonally adjusted basis, after increasing 0.1 percent in May. Over the last 12 months, the all-items index increased 3.0 percent before seasonal adjustment.

Consumer Credit  Released 7/10/2023 – Consumer credit increased at a seasonally adjusted annual rate of 1.8 percent in May. Revolving credit increased at an annual rate of 8.2 percent, while nonrevolving credit increased at an annual rate of 0.4 percent.  

U.S. Trade Balance – Released 7/6/2023 –  The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $69.0 billion in May, down $5.5 billion from $74.4 billion in April. May exports were $247.1 billion, $2.1 billion less than April exports. May imports were $316.1 billion, $7.5 billion less than April imports. The May decrease in the goods and services deficit reflected a decrease in the goods deficit of $4.8 billion to $91.3 billion and an increase in the services surplus of $0.7 billion to $22.3 billion.

PMI Non-Manufacturing Index – Released 7/5/2023 – Economic activity in the services sector expanded in June for the sixth consecutive month as the Services PMI® registered 53.9 percent, 3.6 percentage point higher than May’s reading of 50.3 percent.  

U.S. Construction Spending – Released 7/3/2023 – Construction spending during May 2023 was estimated at a seasonally adjusted annual rate of $1,925.6 billion, 0.9 percent above the revised April estimate of $1,909.0 billion. The May figure is 2.4 percent above the May 2022 estimate of $1,880.9 billion. 

PMI Manufacturing Index – Released 7/3/2023 – The June Manufacturing PMI registered 46.0 percent, 0.9 percentage points lower than the 46.9 percent recorded in May. Regarding the overall economy, this figure indicates a seventh month of contraction after a 30-month period of expansion. The New Orders Index remained in contraction territory at 45.6 percent, 3.0 percentage points higher than the figure of 42.6 percent recorded in May. The Production Index reading of 46.7 percent is a 4.4-percentage point decrease compared to May’s figure of 51.1 percent. 

US Light Vehicle SalesReleased 6/30/2023  U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.058 million units in May.

Chicago PMI Released 6/30/2023 – Chicago PMI remained in contraction territory in June increasing to 41.5 points up from 40.4 points in May. This marks ten months in contractionary territory.   

Next week we get data on Chicago PMI, Manufacturing PMI, U.S. Construction Spending, Services PMI, JOLTS, and the July Jobs Report. 

Data Sources:

Bureau of Economic Analysis (BEA)
Congressional Budget Office (CBO)
U.S. Bureau of Labor Statistics (BLS)
Federal Reserve Economic Data (FRED Charts)

CME Fed Watch
U.S. Treasury – Yields
U.S. Census Bureau
Institute for Supply Management (ISM)
Weekly DOL Employment Data
BLS Monthly Jobs Report

US Energy Admin (EIA)
BLS Consumer Price Index CPI
BLS Producer Price Index PPI
Atlanta Fed GDPNOW
NY Fed Nowcast GDP
US Census Bureau Housing Starts

Consumer Credit
USCB Retail Sales
Construction Spending
Federal Reserve Dot Plots
NY Empire Index
Philadelphia Federal Reserve
P/E Ratio Data -Yardeni Research

Technical Analysis Info: – Financial Charts
Exponential vs Simple moving average

Other Links:

1973 Arab Oil Embargo
Hunt Brothers Silver
Long-Term Capital bailout
Asian Contagion