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WEEKEND BRIEFING: July 2nd to July 8th, 2023

Economic Data Fuels Market Volatility

A string of strong economic data in the week from July 2nd to July 8th shifted investors’ expectations toward further interest-rate increases. This anticipation led to a harmonized decline for U.S. stocks and government bonds, disrupting a period of exceptional market tranquility. During this serene phase, major stock indexes like the Dow Jones, S&P 500, and Nasdaq Composite had risen to some of their highest levels in the past year, riding a wave of low volatility and steady growth.

However, this trend was halted as the Dow slipped 673 points, or 2%, over the course of the week. Similarly, the S&P 500 and the Nasdaq Composite saw a decrease in value, falling 1.2% and 0.9%, respectively. These drops were mild but significant, marking the return of volatility to the market and shaking the confidence of some investors.

Job Growth Surprises Investors, Sparks Rate Hike Fears

Despite the market’s retreat, the U.S. economy showed impressive resilience. The private sector added 497,000 jobs in June, more than double the gain of 220,000 forecast by economists polled by The Wall Street Journal. This significant increase in job creation surprised many investors who had been preparing for an impending recession.

Furthermore, other releases pointed to a robust U.S. economy. The Institute for Supply Management announced that its index of services activity rose to 53.9 in June, up from 50.3 in May. This index is a significant indicator of economic health, and a reading above 50 implies expansion. This flurry of positive economic data played a significant role in triggering the S&P 500’s worst day since May.

While these economic figures indicated strong growth, they also ignited a familiar concern among investors—that a booming economy would prompt the Federal Reserve to raise interest rates higher than anticipated. Many investors also kept an eye on wage growth, which outperformed economists’ expectations. Average hourly earnings rose by 0.4% from the previous month, a figure higher than anticipated, keeping the Federal Reserve on course to hike interest rates later this month.

Market Recovers As Optimism Returns

Despite these concerns, optimism crept back into the market by the end of the week. Investors, while cognizant of the Federal Reserve’s likely actions, chose to focus on the steady addition of jobs. This shift in sentiment helped the S&P 500 recover some of its losses on Friday, although it still finished lower. The Dow, the S&P 500, and the Nasdaq all saw minor slips on Friday, ending the week on a cautious note.

Treasury Yields Soar

The week’s strong economic data led to a surge in Treasury yields, which reached some of the highest levels of the year. The yield on the 10-year Treasury note climbed to 4.047%, marking its largest one-week yield gain since May. The yield on the 2-year Treasury note followed suit, rising for the fifth consecutive week to reach 4.931%.

Betting Against the Economy Proves Costly for Traders

A significant consequence of the week’s unexpected economic strength was the impact on traders betting on a recession. Sectors that were considered sensitive to the economy’s health, such as industrials and consumer-focused segments, defied expectations by performing well, catching traders flat-footed. This situation triggered one of the most intense short squeezes in recent years, leading to significant losses for traders who had bet against these sectors.

Meanwhile, smaller companies listed in the Russell 2000, which are typically more economically sensitive, outperformed the broader market. Despite the overall downturn, this index gained 1.2%, demonstrating the resilience of smaller businesses in the face of macroeconomic headwinds.

Energy Sector Enjoys a Strong Week

In sector-specific news, energy stocks enjoyed a strong week, driven by rising oil prices. Brent crude, the global benchmark for oil prices, was up by approximately 2.5% at around $78 a barrel. Companies servicing the energy sector saw their stock prices surge. Schlumberger and Halliburton, key players in oil and gas exploration and extraction, saw their stocks rise by more than 8% and 7%, respectively. Similarly, U.S. producers like Diamondback, APA, Marathon Oil, and EOG each experienced a surge of around 4%.

Tech Giants Report Positive News

In the corporate world, several high-profile tech companies made headlines. Meta Platforms’ shares climbed by 1.2% after the launch of its microblogging platform, Threads, seen as a direct competitor to Twitter. Electric vehicle manufacturer Rivian saw its shares skyrocket by 48% over the previous eight sessions, following a statement announcing increased quarterly deliveries. Similarly, Tesla, the EV industry giant, also reported increased deliveries, leading to a near 5% gain in its stock value for the week.




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