Monthly Market Insights | June 2023

U.S. Markets

Stock prices were mixed as enthusiasm over the economic potential of artificial intelligence was offset by concerns about the federal debt ceiling.

The Dow Jones Industrial Average lost 3.49 percent, while the Standard & Poor’s 500 Index notched a slight gain, adding 0.25 percent. The Nasdaq Composite led, picking up 5.80 percent.1

The people who are crazy enough to think they can change the world are the ones who do. Steve Jobs, American business magnate and innovator of Apple’s 1997 “Think Different” campaign

Prevailing Headwinds

Stocks navigated several headwinds, including talk of another Fed rate hike, concerns about regional banking stresses, and ongoing recession fears. But the most challenging headwind for the market was the uncertainty surrounding the national debt ceiling.

Debt Ceiling Talks

The political brinkmanship surrounding the talks was unsettling for the financial markets. Stocks were held captive to the ebb and flow of updates, falling when lawmakers’ talks faltered and rising when an agreement seemed near. As the month closed, the debt ceiling measure appeared close to the finish line.2

Upbeat Corporate Reports

One source of support for stocks last month was first-quarter corporate reports, which exceeded the market’s low expectations. With 97 percent of the companies comprising the S&P 500 reporting, 78 percent reported a positive earnings surprise. This is the best performance relative to Wall Street estimates since the fourth quarter of 2021.3

AI Movement

This corporate earnings season ushered in a dramatic development—a heightened focus on artificial intelligence (AI). In an analysis of earnings calls, 110 companies mentioned AI, representing a 40% increase from the fourth quarter.4

One mega-cap chip company reported above-consensus earnings along with strong guidance due to its AI-related business, igniting investor enthusiasm that rippled across the technology and communication services sectors as May came to a close.4

Sector Scorecard

Three industry sectors ended the month with gains: Communications Services (+4.87 percent), Consumer Discretionary (+3.54 percent), and Technology (+10.39 percent). Losses were seen in Consumer Staples (–5.89 percent), Energy (–8.13 percent), Financials (–2.18 percent), Healthcare (–4.42 percent), Industrials (–1.12 percent), Materials (–5.26 percent), Real Estate (–3.99 percent), and Utilities (–6.55 percent).5

What Investors May Be Talking About in June

The Federal Open Market Committee (FOMC) will close its two-day meeting on June 14 and update investors on the direction of short-term rates.

At its May 2023 meeting, the FOMC announced a 25 basis point hike, adding that Committee members may decide to pause on future rate hikes, depending on fresh economic data and prevailing financial conditions.

But the market believes that the Fed will raise interest rates at least another 25 basis points this summer, perhaps as soon as this month.6

FOMC meetings have been important events in the markets for the last two years, and this upcoming one is no different.

World Markets

The MSCI-EAFE Index slid 4.76 percent in May as Germany’s economy entered a recession and China’s most recent reopening efforts struggled.7

European markets were under pressure most of the month. At the end of May trading, France lost 5.24 percent, the U.K. dropped 5.39 percent, and Italy fell 3.79 percent.8

Pacific Rim markets mixed. China’s Hang Seng index dropped 8.35 percent, while Japan’s Nikkei rose 7.04 percent.9

Indicators

Gross Domestic Product (GDP)

The second estimate of first-quarter GDP growth was revised higher, from 1.1 percent to 1.3 percent.10

Employment

Employers added 253,000 jobs in April, as the unemployment rate fell to 3.4 percent. Wages rose 4.4 percent year over year. April’s job growth number was offset by a downward revision of 149,000 in the February and March estimates.11

Retail Sales

Retail sales increased 0.4 percent in April, up from a revised 0.7 percent decline in March. It was the first increase since January.12

Industrial Production

Industrial production rose 0.5 percent in April, led by an increase in manufacturing activity. Capacity utilization rose to 79.7 percent, in line with its long-term average.13

Housing

Housing starts climbed 2.2 percent, an encouraging report that was offset by a downward revision of the March number.14

Sales of existing homes fell 3.4 percent in April and were lower by 23.2 percent from a year earlier. The median price of existing home sales fell 1.7 percent from April 2022, the largest year-over-year decline in more than 11 years.15

New home sales gained 4.1 percent. Economists expected a 2.0 percent decline. Sales of new homes were 11.8 percent above those of April 2022.16

Consumer Price Index (CPI)

Year-over-year inflation cooled to 4.9 percent, down slightly from March’s 5.0 percent increase. It was the tenth straight month in which price inflation fell. April’s monthly increase in prices was 0.4 percent, which was in line with expectations, although higher than the 0.1 percent increase in March.17

Durable Goods Orders

New orders for durable goods rose 1.1 percent in April, beating the consensus forecast of a decline of 0.8 percent. The gains were driven by defense spending and business investment.18

The Fed

After raising interest rates by 0.25 percent at the start of May, the minutes from the Federal Open Market Committee indicated a division among committee members over whether further rate hikes would be necessary.19

The majority of them signaled that they were ready for a pause. Members supporting another rate hike believed that the progress on inflation was moving too slowly in reaching the Fed’s target inflation rate of 2 percent.19

By the Numbers: World Blood Donor Day on June 14th