Equities
U.S. stocks oscillated as earnings reports continued to roll in. While Q2 results have been generally solid, guidance for 2023 has softened and forward EPS estimates have finally begun to fall – especially outside the energy sector. Growth stocks outperformed for much of the week, extending a 5-week run during which the Nasdaq 100 has beaten the S&P 500 by about 500 bps. Friday’s jobs data dealt a blow to that narrative, however, with higher rates supporting cyclicals. With indexes rising and earnings forecasts moderating, the S&P 500 P/E multiple equaled a 3-month high of 17.5x. Stocks in EM and Europe returned 0.91% and -0.87%.
Fixed income
Hawkish Fed comments on Tuesday reignited the possibility of a 75bps hike in September, pushing back against market expectations of rate cuts in 2023. Yield curve inversion continued to deepen and the 2-10 yield spread ended at -40 bps, a two-decade low. In credit, HY bond yields collapsed, and spreads continued to tighten, supported by positive equity market performance.
Commodities
WTI crude prices fell below $90/bbl for the first time since Russia’s invasion despite OPEC+ announcing only a trivial output hike, as gasoline demand data showed an unexpected softening. U.S. gasoline prices have declined for nearly 2 consecutive months, aided by both lower crude prices and tighter crack spreads (refinery margins). European natural gas sits near all-time highs amid curtailed Russian supply and sweltering heat.
Economic overview
Job growth surged 528,000 in July, over twice the expected gain, with broad-based job gains. The unemployment rate fell to 3.5% and average hourly earnings jumped 0.5% m/m (Cons 0.3%), all reinforcing the health of the labor market. Other data were also solid. The ISM manufacturing survey beat expectations in July at 52.8 while the services survey was 56.7, a solid bounce from the prior month. Factory orders for June also surprised to the upside with a 2.0% gain (Cons 1.2%) that reflects business investment spending. This week’s CPI data will be critical for Fed rate expectations. The consensus expects a 0.2% m/m gain in July, and 0.5% ex food and energy. Peak CPI may not mean a fast descent, however, and rent inflation in particular will be in focus.
