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The Long and Short of it, week ending 11 Aug 2023

Posted: 14 August, 2023

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

Publication Type: Market Commentaries

The Long and Short of it, week ending 11 Aug 2023

Index performance diverged last week with the Nasdaq Composite noticeably underperforming the Dow Jones Industrial Average and the S&P 500 Index. The Dow Jones Industrial Average was the only index to end the week with a gain though the S&P 500 Index finished the week slightly lower, falling a bit more than ¼ percent. Downward pressure on stocks seemed to come from, 1) concerns the Fed will keep rates higher for longer, 2) a faltering Chinese economy and 3) renewed concerns surrounding regional bank health following Moody’s creditrating downgrade of 10 regional banks. Current interest rate levels may also be detracting from stock market performance with bonds providing a more attractive alternative investment. Thursday’s better-than-expected CPI release momentarily pushed markets higher, fueling hopes the Fed will be less aggressive going forward, but those hopes were diminished Friday following a higher-than-expected PPI release. For the week, the S&P 500 Index fell 0.3% to 4,464.05, the Nasdaq Composite Index dropped 1.9% to 13,644.85, the Dow Jones Industrial Average rose 0.6% to 35,281.47, the 10-year U.S. Treasury rate increased 12bps to 4.16% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 0.8%.

European stock indexes moved lower as well last week, though the STOXX 600 Index was practically unchanged. Interestingly, both the FTSE 100 and STOXX 600 indexes were approximately 1% higher through Thursday. Much weaker-than-expected Chinese trade data, Italy’s announcement of a 40% banking-related windfall tax and Moody’s downgrade of 10 U.S. regional banks pressured markets lower Monday and Tuesday. Markets moved higher Wednesday and Thursday following Italy’s easing of its windfall tax stance and after Chinese “inflation” data revealed falling prices increasing expectations of Chinese government and central bank stimulus. Thursday’s better-than-expected U.S. CPI release also supported European stock markets. Both the STOXX 600 and FTSE 100 indexes fell sharply Friday, with the STOXX 600 Index reacting to a higher-than-expected U.S. PPI release (i.e., increased concerns of higher rates for longer) and to uncertainty regarding Chinese stimulus plans and with the FTSE 100 Index pressured lower by an unexpected increase in GDP (increasing expectations of more BoE rate increases). For the week, the STOXX 600 Index was almost unchanged at 459.17, the FTSE 100 Index decreased 0.5% to 7,524.16, the 10-year Gilt rate rose 20bps to 4.58%, the 10-year Bund rate increased 8bps to 2.62%, the euro and British pound weakened 0.6% and 0.4%, respectively, both versus the U.S. dollar.