All three major stock market averages closed lower last week, snapping multi-week winning streaks. The Dow Jones Industrial Average fell 1.67% to 33,727, ending a three-week winning streak. The Standard & Poor’s 500 Index dropped 1.39% to 4,348, after gaining ground for five consecutive weeks. The NASDAQ Composite, which has been the leader of the pack, declined 1.44% to 13,493, snapping an eight-week winning streak.
Primary factors behind the weekly declines and trend reversal include rekindled fears over a U.S. recession, after the most recent manufacturing data came in weaker-than expected, along with the commentary/tone out of the Federal Reserve. Inflation levels remain above the Federal Reserve’s target range, and the Fed’s interest rate policy remains the main narrative for the financial markets.
In congressional testimony last week, Fed Chair Powell stated senior officials expect further rate increases by the end of the year. According to the CME FedWatch Tool, the probability is nearly 75% the Fed will raise rates ¼ percentage point at their next policy meeting in July. Prior to this, markets seemed to be centering around the idea the Fed was possibly/likely done raising rates. Several European central banks also provided hawkish commentary and raised interest rates, reviving worries about global economic growth and a global recession.
Don’t look now, but we are almost into another earnings season! Even though we just put an exclamation mark after earnings season, as we generally find it exciting and it’s our favorite season of the year, markets are not expecting much to celebrate. For the second quarter of 2023, the estimated earnings decline for the S&P 500 is -6.5%, according to data from FactSet (so expectations are low). Over the next several weeks, markets will likely be driven by earnings reports and guidance, in addition to the ongoing big-picture items of Fed policy and the economic outlook.
Things will get warmed up this week, as we’ll get quarterly results from Carnival, General Mills, Walgreens Boots Alliance, Micron Technology, and Nike.
As always, don’t hesitate to contact us with any questions or if you would like to schedule a meeting.
All the best – Southport Station Financial Management, LLC