Equity markets took a breather last week as the S&P 500 logged its worst weekly move since March and snapped three-straight weeks of gains. Additionally, in a rare occurrence, Fitch Ratings lowered the U.S. Government's long-term credit rating from the top-tier ‘AAA’ status to ‘AA+’, sending the market modestly lower. In response to the rating change, U.S. Treasury Secretary Janet Yellen wrote that U.S. government securities “remain the world’s preeminent safe and liquid asset.”
Corporate earnings were in full swing as well last week with 34% of the S&P 500 reporting second quarter results. According to FactSet, 79% of all the reports so far have beaten earnings expectations, yet the reported earnings growth remains negative and at its lowest level since the second quarter of 2020, as companies continue to battle macro headwinds.
On the economic front, nonfarm payrolls came in slightly below expectations adding 187K jobs in the month of July. Average hourly earnings moved higher, and the unemployment rate dropped to 3.5% and continues to hover near 50-year lows. While payroll gains were cooler than the pace of the last few months, they were not slow by any measure. It would be hard to categorize the report as anything other than solid.
A look back
- Equities struggled last week with U.S., international developed, and emerging markets equity each closing in the red by over 2%.
- The inversion between 2-/10-year U.S. Treasuries shrank last week as the 10-year yield moved up faster than the 2-year yield.
- The U.S. long-term credit rating was lowered by Fitch Ratings from ‘AAA’ to ‘AA+’, the second of the “big three” ratings agencies to remove its top-tier ‘AAA’ status.
A look ahead
- With only 16% of the S&P 500 left to report earnings, brokerage conference season starts to get underway, and investors will look for incremental clues as to how 3Q23 is playing out so far.
- July inflation data will be in focus this week with consumer and producer price reports.
- Economic releases: NFIB Small Business Optimism, Wholesale Inventories, Consumer & Producer Prices, Trade Balance, and U. of Michigan Sentiment.
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