Presented by The PensionmarkMeridien Team, August 15, 2023
THE WEEK ON WALL STREET
U.S. stock indexes were mixed last week, courtesy of producer pricing data running a bit warm and bank credit downgrades in the spotlight. However, consumer pricing came in slightly lower than market expectations.
By last week’s close, here was the weekly tale of the tape: the S&P 500 retreated marginally by 0.31%1, the Nasdaq 100 shed 1.62%2, and the Dow Jones Industrial Average finished the week higher by 0.62%3.
MOODY’S CUTS BANK CREDIT RATINGS
Moody’s, a “big three credit rating agency4,” cut their ratings for several small- and mid-sized banks early last week.
“U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s analysts said 5 in the accompanying research note detailing the decision.
Moody’s also placed some larger banks under negative watches,5 meaning they’re being reviewed for potential downgrades.
The bank credit downgrades come after the previous week’s downgrade6 of the U.S. credit rating by Fitch Ratings.
JULY INFLATION DATA MIXED OBS REPORT
Inflation data for July implied a mixed picture. Here’s the latest.
Consumer Price Index (CPI): July CPI rose less than expected, showing an uptick of 3.2% year-over-year versus 3.3% expectations. This was a good sign amid our continued inflation battle. However, the 3.2% annual number marked an increase from the 3.0% rise in June, which was the first such rise7 in 13 months–not so good.
Market reaction8 to the data was initially positive, but overall daily gains in major equity indexes were mostly given back by market close last Thursday.
Producer Price Index (PPI): After markets digested the mixed bag on CPI last Thursday, Friday’s Producer Price Index (PPI) was in focus.
The wholesale pricing metric rose 0.3% in July9 on a monthly basis, higher than the estimates of 0.2%. The rise was the biggest monthly gain since January10and a jump from an unchanged reading in June.
The wholesale pricing data could be viewed 11 as a precursor to higher consumer prices.
TREASURY YIELDS RISE
While the consensus narrative in recent weeks seems to indicate lower interest rates, rising Treasury yields could be telling a different story in the last few weeks.
Yields for the 10-year note closed near their highs for the week last week and closed out the week near 4.167%12, up from the prior weekly close near 4.061%.
2-year note yields also rose last week, closing the week near 4.899%13, close to the psychologically important 5.0% level.
PUTTING IT TOGETHER
The U.S. debt downgrade was already being digested by the markets when a new slew of bank downgrades added more focus to creditworthiness.
Talk of rising consumer debt14 and weaker consumer spending15 could make it into more headlines soon, creating some headwinds for the market in the short term.
Market reaction was rather muted last week on the mixed inflation data and bank downgrades, but rising Treasury yields could be on the market’s radar this week and in the short term.
Ultimately, however, it is the long term that matters. Markets and sentiment can change quickly. That’s why it’s important to stay focused on the long-term strategy with discipline.
This week, attention will turn to retail sales as an indication of consumer health, along with the meeting minutes from the last Fed meeting.
If there is anything on your mind regarding your allocation or strategy, please feel free to reach out to us.
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This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Citations:
1.Trading View, August 13, 2023
2. Trading View, August 13, 2023
3. Trading View, August 13, 2023
4. Investopedia, January 31, 2022
5. CNBC, August 8, 2023
6. Fitch Ratings, August, 1, 2023
7. CNN, August 10, 2023
8. CNBC, August 9, 2023
9. CNBC, August 11, 2023
10.CNN, August 11, 2023
11. Investopedia, August 10, 2023
12. Trading View, August 13, 2023
13. Trading View, August 13, 2023
14. CNBC, August 10, 2023
15. Forbes, August 12, 2023
Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).