ClearWater Market Commentary as of June 30th, 2023

Here is the ClearWater Market Commentary as of June 30^th, 2023:

In this issue:
– Performance of Major Indices
– Market Commentary
– Last Week’s Key Economic  Events and Upcoming Events

Performance of Principle Indexes: 

S&P/TSX Composite Index
5 Day	3.82%
1 Month	0.65%
YTD	3.97%
1 Year	6.86%

^{As of 2023/06/30- Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
CAC 40	3.93%	13.97%
Russell 2000	3.87%	7.52%
S&P/TSX Composite	3.82%	4.14%
S&P 500	2.77%	13.90%
DAX	2.62%	15.63%
Dow Jones Industrial	2.45%	1.56%
Nasdaq	2.20%	31.70%
WTI Crude (Oil)	1.90%	-12.20%
Shanghai Composite	1.63%	3.65%
MSCI EAFE	1.60%	9.70%
Nikkei	1.34%	13.21%
FTSE 100	1.19%	3.86%
Hang Seng Index	0.51%	-6.81%

^{As of 2023/06/30- Source: www.marketwatch.com}

Last week’s and next week’s key economic events:

US economy (S&P 500 2.77%):

• Positive growth and inflation surprises helped the major benchmarks round out a solid quarter on a high note, with the S&P 500 Index recording its best weekly gain since the end of March. The rally also broadened, with small-caps and value shares outperforming, and the equal-weighted S&P 500 Index handily outpacing its market-weighted counterpart.
• The technology-heavy Nasdaq Composite remained well ahead of the other benchmarks for the year-to-date, however, ending the week with a six-month gain of nearly 32%, its best start to the year since 1983.
• Notably, Apple closed trading Friday with a market capitalization above USD 3 trillion, marking a first for a publicly traded company. The Wall Street Journal reported that Apple’s valuation has surpassed that of five of the S&P 500’s 11 sectors in their entirety (materials, real estate, utilities, energy, and consumer staples).
• Inflation data released Friday appeared to provide the biggest boost to sentiment. The Commerce Department reported that its personal consumption expenditures (PCE) price index had increased by 0.1% in May, bringing its year-over-year increase down to 3.8%, its lowest level since April 2021. 
• The core (excluding food and energy) PCE index, considered the Federal Reserve’s preferred inflation gauge, fell back to 4.6% on a year-over-year basis, still well above the Fed’s 2% target, but seemingly calmed fears of a reaccelerating in price pressures after April’s upside surprise.
• Among the other signals of strength in the week’s heavy economic calendar:
• Private sector incomes rose 0.5% in May, according to Commerce Department data, well in excess of a 0.1% increase in consumer spending.
• Weekly jobless claims defied expectations and plummeted by 26,000 from a 20-month high to 239,000, marking the sharpest drop since October 2021. Continuing claims also surprised on the downside and fell back to a four-month low. 
• The University of Michigan revised its gauge of consumer sentiment higher, pushing it to its best level in four months. The survey’s chief researcher attributed the “striking upswing” to the resolution of the debt ceiling standoff but also to “more positive feelings over softening inflation.” 
• Similarly, May new home sales easily outpaced estimates, rising 12.2% in May, well above expectations for a modest decline and at the fastest pace since February 2022, when rates for a fixed 30-year mortgage were nearly 300 basis points (three percentage points) lower.

Canadian markets (S&P/TSX 3.82%):

• Canada’s main stock index closed out the first half of the year on a buoyant note, posting triple-digit gains heading into the three-day weekend while U.S. stock markets also moved higher.
• The S&P/TSX composite index closed up 242.12 points at 20,155.29 on Friday, ending a week of gains across the board, particularly in the industrials.
• While the TSX has not done quite as well comparatively due to its high concentration of energy stocks — a sector that has been weighed down by falling crude oil prices in recent months — markets on both sides of the border have outperformed expectations for the first six months of 2023.
• For much of the past year, interest rate hikes by central banks have spurred fears that the economy could be in for a hard landing. 
• But Canadian inflation for May (as measured by the Consumer Price Index) met market expectations, with a 0.4% month-over-month increase and a 3.4% year-over-year increase. While inflation remains above the Bank of Canada’s target of 2%, the latest report marks a continued trend lower from the lofty levels of last year and the lowest level for headline inflation since June 2021— many investors believe the end of the rate-hike cycle is near.
• It remains to be seen whether inflation is at a level that will satisfy the Bank of Canada enough to maintain its overnight rate at 4.75%. An easing of the interest rate environment is more likely in 2024 at the earliest, with a continued risk of further rate increases in the back half of 2023.
• The Canadian dollar traded for 75.53 cents US compared with 75.44 cents US on Thursday.
• The August crude oil contract was up 78 cents at US$70.64 per barrel and the August natural gas contract was up almost 10 cents at US$2.80 per mmBTU.

Performance 2023: S&P 500 Sectors   

Forward P/E Ratios: S&P 400/500/600 Sectors

European and Asian economies:

• In local currency terms, the pan-European STOXX Europe 600 Index rallied on hopes that China would do more to boost consumption and that lower-than-expected inflation data could mean that interest rates are near their peak. Major stock indexes also posted gains.
• Annual inflation in the eurozone slowed for a third month in June to 5.5% from 6.1% in May, according to an initial estimate from the European Union’s statistics office. The result was lower than the 5.6% forecast by economists polled by FactSet. Core inflation—which excludes energy, food, alcohol, and tobacco prices—ticked up to 5.4% from 5.3%.
• News reports from the ECB’s annual Forum on Central Banking suggested that policymakers are still likely to vote for another interest rate increase in July. ECB President Christine Lagarde acknowledged that the central bank had made “significant progress” in combating high inflation but asserted that policymakers “cannot declare victory yet.” According to Lagarde, uncertainty over how tight labor markets and large wage increases will influence price means “it is unlikely that in the near future the central bank will be able to state with full confidence that the peak rates have been reached.” Even so, some Governing Council members, including Vice President Luis de Guindos, opined that another hike in September was less certain, with the decision depending on incoming economic data.
• Bank of England (BoE) Governor Andrew Bailey said at the ECB’s annual Forum on Central Banking that UK interest rates are likely to stay higher for longer than financial markets expect. 
• The Riksbank raised its key interest rate by a quarter percentage point to 3.75%, as expected. The central bank said that “the forecast is for the policy rate to be increased at least one more time this year.” The bank also accelerated the pace of government bond sales.
• Japan’s stock markets gained over the week.Halfway through 2023, Japanese equities were among the world’s best performers in local currency terms, although yen weakness to a degree moderated returns in U.S. dollar terms.
• Japan’s monetary authorities stated that every option is on the table to cope with excess volatility in the foreign exchange markets, as the Japanese currency fell to near a seven-month low of around JPY 144.8 against the U.S. dollar. 
• Speaking at the ECB’s monetary policy forum with heads of other major central banks, Ueda said—as reported by Reuters—that, although Japan’s headline inflation is above 3%, underlying inflation remains below target, which is the reason for keeping monetary policy easy. He added that there is still some distance to go in sustainably achieving 2% inflation accompanied by sufficient wage growth. If the BoJ becomes reasonably sure that inflation would accelerate into 2024 after a period of moderation, this would be a good reason to shift monetary policy, Ueda stated.
• The core consumer price index for the Tokyo area, a leading indicator for nationwide consumer inflation, rose 3.2% year on year in June. Although the uptick was less than expected, Tokyo consumer price growth has now remained above the BoJ’s 2% target for over a year, adding to pressure on the central bank to tighten its ultra-loose monetary policy.
• In China atocks ended mixed, as weak economic indicators offset optimism that the government might implement additional measures to bolster economic growth. 
• China’s official manufacturing Purchasing Managers’ Index (PMI) ticked up to 49.0 in June—in line with expectations and an improvement from the 48.8 registered in May. Nevertheless, PMI readings less than 50 indicate a contraction in activity. The nonmanufacturing PMI eased, slipping to a below-consensus 53.2 in June from 54.5 in May. These numbers suggested that the service and construction industries continued to grow, albeit at a slower pace.
• Profits at China’s industrial firms fell 18.8% year over year in the first five months of 2023, according to the National Bureau of Statistics. This contraction was less than the 20.6% decline recorded this year through the end of April.
• Premier Li Qiang, the country’s second-ranking official, asserted that China is on track to reach its annual growth target of about 5%. Speaking at the World Economic Forum’s annual meeting, Li pledged that Beijing would roll out more practical and effective measures to strengthen domestic demand, boost markets, and support the country’s development and growth.
• Domestic consumption appeared to pick up during the three-day Dragon Boat Festival holiday but fell short of pre-pandemic levels. Overall travel rose 89.1% from the prior-year period but remained 22.8% below the same period in 2019, according to the Ministry of Transport.

What to watch this week:

• S&P Global Manufacturing PMI (Jun)
• ISM Manufacturing PMI (Jun)
• FOMC Meeting Minutes
• U.S. Trade Balance (May)
• Job Openings and Labor Turnover Survey (JOLTS) Report (May)
• S&P Global Composite PMI – Final Reading (Jun)
• U.S. Nonfarm Payrolls (Jun)

• 

Sources: Bloomberg.com,Yardeni.com, Barron’s.com, Factset.com and Newyorkfed.org

Thank you for checking out our ClearWater Market Commentary for June 30^th, 2023. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.