Home / Research / The Long and Short of it, week ending 04 Aug 2023

The Long and Short of it, week ending 04 Aug 2023

Posted: 09 August, 2023

Topic: Telecoms , Financials , Basic Materials , Energy , Industrials , Technology

Publication Type: Market Commentaries

The Long and Short of it, week ending 04 Aug 2023

Stock markets moved lower last week with all 3 major indexes losing more than 1%. The Dow Jones Industrial Average noticeably outperformed the Nasdaq Composite and S&P 500 Indexes with the latter 2 indexes falling south of 2%. Rising Treasury yields appeared to be the primary culprit for last week’s losses, with investor interest seemingly tilting toward bond rather than stock investments (strong gains year to date also may be part of the dynamics). Treasury yields, up over 20bps through Thursday, moved markedly higher following the Treasuries much larger-than-expected funding announcement Wednesday. Fitch Ratings’ downgrade (Wednesday) of the U.S. credit rating (from AAA to AA+) may have been another factor contributing to higher Treasury yields and lower stock prices. Friday’s payroll report, showing a smaller-than-expected increase in payrolls but continued upward wage pressures, did little to reverse investor sentiment toward stocks but seemingly allayed “higher rates” expectations, moving the 10-year Treasury rate 14bps lower. For the week, the S&P 500 Index fell 2.3% to 4,478.03, the Nasdaq Composite Index dropped 2.9% to 13,909.24, the Dow Jones Industrial Average decreased 1.1% to 35,065.15, the 10-year U.S. Treasury rate increased 8bps to 4.04% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 0.4%.

European stock indexes moved lower as well last week, with the FTSE 100 Index outperforming the STOXX 600 Index. Both indexes moved slightly higher Monday, with the STOXX 600 buoyed by lower-than-expected euro zone inflation and with the FTSE 100 benefiting from rising energy and mining stock prices. Markets moved lower Tuesday through Thursday, hurt by weak manufacturing and service activity (in the U.S., Europe and China), rising U.S. Treasury yields and Fitch Ratings’ U.S. credit rating downgrade. U.S. Treasury rates moved over 20bps higher through Thursday, powered by a much larger-than-expected Treasury funding announcement, Fitch Ratings’ downgrade and a very strong ADP private payroll report. Weak earnings reports adversely affected both indexes as well. Markets moved slightly higher Friday, however, buoyed by a mixed U.S. jobs reports (showing payrolls fell more than expected) increasing hopes of a Fed pause and for a “soft landing”. The as -expected BoE 25bp rate hike Thursday seemingly diminishing concerns of more aggressive monetary policy going forward, also helped move UK stock prices higher Friday. For the week, the STOXX 600 Index fell 2.4% to 459.28, the FTSE 100 Index decreased 1.7% to 7,564.37, the 10-year Gilt rate rose 5bps to 4.38%, the 10-year Bund rate increased 8bps to 2.54%, the euro and British pound weakened 0.1% and 0.8%, respectively, both versus the U.S. dollar.