ClearWater Market Commentary as of May 26th, 2023

Here is the ClearWater Market Commentary as of May 26^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	-2.03%
1 Month	-3.47%
YTD	2.76%
1 Year	-3.99%

^{As of 2023/05/26- Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Nasdaq	2.50%	24.00%
WTI Crude (Oil)	1.50%	-9.30%
S&P 500	1.15%	10.58%
Dow Jones Industrial	-0.21%	0.39%
Nikkei	-0.74%	11.24%
Russell 2000	-1.25%	0.67%
FTSE 100	-1.69%	5.14%
DAX	-1.74%	15.66%
S&P/TSX Composite	–2.03%	2.93%
CAC 40	-2.25%	13.91%
Shanghai Composite	-2.28%	4.28%
MSCI EAFE	-2.90%	9.90%
Hang Seng Index	-3.09%	-5.05%

^{As of 2023/05/26- Source: www.marketwatch.com}

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

US economy (S&P 500 1.15%):

• The major benchmarks ended mixed as investors watched carefully for signs of progress in negotiations over raising the federal debt ceiling. 
• The technology-heavy Nasdaq Composite outperformed and ended the week up 23.97% for the year-to-date period—a stark contrast to the 0.16% decline of the narrowly focused Dow Jones Industrial Average over the period. Similarly, the Russell 1000 Growth Index ended up 20.75% over the period, while the Russell 1000 Value Index—heavily weighted in the struggling financials sector—was down 1.64%. 
• Relatedly, alongside the debt ceiling negotiations, the signal event in the week may have been Thursday’s 24% jump in the shares in chipmaker NVIDIA, which took the company’s market capitalization to roughly USD 963 billion by the end of the week and made it the sixth most highly valued public company in the world. 
• Debt ceiling negotiations resumed after President Joe Biden returned from Japan at the start of the week, but markets headed downward as signs emerged that little progress was being made. This followed reports that some Republicans in the House of Representatives were questioning the urgency of the deadline set by U.S. Treasury Secretary Janet Yellen for when the government would become unable to meet its obligations—the so-called x-date. 
• Signs of renewed momentum in the talks seemed to spur a market rally on Friday, however. Both sides were nearing a two-year spending deal that also extended the debt ceiling over the same period.  
• Friday’s gains may have been capped by some discouraging inflation data. The core (less food and energy) personal consumption expenditures (PCE) price index, considered the Federal Reserve’s preferred inflation gauge, rose by 0.4% in April, a tick above expectations. On a year-over-year basis, the index rose by a notch to 4.7%, indicating no progress in bringing inflation down since the start of the year. 
• Meanwhile, the Commerce Department reported that personal spending had jumped 0.8% in April, roughly double consensus expectations and supported by increases in spending on both goods and services.

Canadian markets (S&P/TSX -2.03%):

• Canada’s main stock index gained almost 150 points Friday amid broad-based strength, while U.S. markets also rose as tech continued to outperform. 
• Markets closed the day in the green as negotiators at the debt ceiling talks appeared to be closer to a deal before the U.S. government runs out of cash. The talks have been adding uncertainty to the market as a deadline looms, since the nation could go into a potentially catastrophic default if a deal isn’t reached. 
• Canadian bank shares tumbled after four out of the five Big banks reported lower-than-expected earnings for the second quarter. Ongoing concerns over a slowing Canadian economy, rising costs and slower loan growth affecting revenues weighed on the banks’ outlooks. 
• In addition, fears of souring loans are increasing as the banks set aside additional provisions for credit losses (PCLs) as a precautionary measure against potential losses. Heightened uncertainty was also expressed by several bank executives, particularly those with significant exposure to US operations in the aftermath of recent banking challenges.
• However, CIBC stood out as an exception by exceeding estimates and offering a somewhat more positive outlook, anticipating an expansion in net interest margin in the second half of the year. Unless there is an unexpected interest rate cut, financial conditions will likely tighten further, increasing the burden on Canadian consumers. 
• While Canadian banks maintain a strong fiscal position that provides some insulation, the combination of slower growth, a weaker Canadian economy, and stricter lending standards will likely result in a challenging path ahead for the banks.
• The Canadian dollar traded for 73.41 cents US compared with 73.38 cents US on Thursday.
• The July crude contract was up 84 cents at US$72.67 per barrel and the July natural gas contract was down six cents at US$2.42 per mmBTU.
• The June gold contract was up 60 cents at US$1,944.30 an ounce and the July copper contract was up nine cents at US$3.68 a pound.

Performance 2023: S&P 500 Sectors   

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

European and Asian economies:

• Shares in Europe fell on signs that the economic outlook may be worsening and continued uncertainty over U.S. debt ceiling talks. 
• The German economy lapsed into recession in the first quarter, according to official figures. Gross domestic product shrank 0.3% in the three months through March, a downward revision from an early estimate of zero growth that reflected a sizable drop in household consumption. Germany’s economy contracted 0.5% in the final three months of last year. Meanwhile, German companies became more uncertain about the year ahead, with the Ifo Institute’s business confidence index falling in May for the first time in seven months.
• A survey of purchasing managers compiled by S&P Global showed that business output in the eurozone grew for the fifth month running in May, although the pace slackened somewhat as weakness in manufacturing offset another strong month of services activity. Optimism about the economic outlook slipped further from February’s 12-month high amid increasing concern about weaker customer demand and higher interest rates.
• European Central Bank (ECB) policymakers echoed ECB President Christine Lagarde’s view that interest rates would need to rise further and stay high to curb inflation in the medium term. Bank of Spain Governor Pablo Hernandez de Cos said policy tightening still had “some way to go” and that “interest rates will have to remain in restrictive territory for an extended period of time to achieve our objective in a sustained manner over time.”   sees no recession
• Inflation slowed in April to an annual rate of 8.7% from 10.1% in March, as the surge in energy prices that occurred last year fell out of the annual comparison. However, core inflation, which excludes volatile energy, food, alcohol, and tobacco prices, rose to a 21-year high of 6.8% from 6.2%. The result fueled market expectations for a 13th consecutive interest rate hike in June.
• The International Monetary Fund (IMF) revised its forecast for the UK economy, predicting that resilient demand and falling energy costs would help it to grow 0.4%. Its projection from April had called for UK gross domestic product to shrink 0.3%.
• The Nikkei 225 benchmark touched a 33-year high early in the week before finishing just below the 31,000 mark. Upbeat economic data and encouraging signals regarding the U.S. debt ceiling helped propel the Nikkei 225 to its highest close since July 1990. 
• Japanese manufacturing activity expanded for the first time in seven months in May. The services sector also reported robust growth, as the return of domestic and international tourism fueled a record rise in business activity. In the afterglow of such strong purchasing managers’ index (PMI) numbers, investors shrugged off data showing that Japan’s core machinery orders fell for a second straight month in March.
• Hawkish comments from the Fed during the week added to speculation that U.S. rates will remain higher for longer. Meanwhile, Governor Kazuo Ueda reconfirmed the Bank of Japan’s ultra-loose monetary policy stance until inflation sustainably hits its 2% target. 
• Chinese stocks fell after a batch of disappointing indicators in recent weeks pointed to a flagging economic recovery. The benchmark CSI 300 Index fell 2.4%, its biggest weekly drop since the five days ended March 10 and erasing all its gains this year, according to Bloomberg. In Hong Kong, the benchmark Hang Seng Index fell below the psychologically key 19,000-point level to its lowest close since December in a holiday-shortened trading week.
• No major indicators or policy measures were released in China during the week. But mounting evidence that the country’s post-pandemic recovery is losing momentum has raised concerns about the economic outlook. Most recently, industrial output, retail sales, and fixed asset investment all grew at a weaker-than-expected pace in April, while weak credit growth indicators also pointed to sluggish domestic demand.
• Chinese banks kept their one- and five-year loan prime rates steady for the ninth straight month, as expected, after the People’s Bank of China (PBOC) left its one-year policy loan rate unchanged earlier in May. However, speculation is growing that the central bank will ease policy to shore up the economy. 
• Geopolitical risks also dampened risk appetite after Beijing said it would ban Chinese companies from buying products from Micron Technology, citing security risks it uncovered in a review of the U.S. chipmaker’s products. The ban announced on May 21 applies to domestic telecom firms, state-owned banks, and other companies behind China’s information infrastructure. The Chinese ban on Micron was seen as China’s most significant retaliation to date in response to U.S. controls on certain technology exports.

What to watch this week:

• Canadian GDP and trade data
• US employment and ISM manufacturing PMI
• US Fed Beige Book
• Japanese employment, retail sales, industrial production data
• Eurozone inflation and employment data
• ECB Minutes from May 3-4 meeting
• Global Purchasing Manager Indices
• 10 S&P 500 and 6 S&P/TSX companies report earnings

• 

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

Thank you for checking out our ClearWater Market Commentary for May 26^th, 2023. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.