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The Long and Short of it, week ending 12 May 2023

Posted: 16 May, 2023

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

Publication Type: Market Commentaries

The Long and Short of it, week ending 12 May 2023

Indexes were mixed last week with the Nasdaq Composite Index realizing a small gain and both the S&P 500 Index and Dow Jones Industrial Average ending the week lower. Prior to Wednesday’s CPI release, stock markets generally moved lower on tightening credit conditions resulting from regional bank concerns and uncertainty regarding future Fed monetary policy. A slightly better-than-expected CPI release moved stock prices higher on growing expectations the Fed would not only pause rate hikes but also would be more likely to ease later this year. And while Thursday’s PPI release added to that sentiment, recession concerns re-emerged on the back of renewed regional bank concerns (PacWest’s share price fell 23% after reporting it continued to see deposit outflows) and higher-than-expected initial jobless claims, pressuring stock markets lower or, in the case of the Nasdaq Composite Index, limiting gains. Friday’s University of Michigan Consumer Sentiment Survey added to stock market woes, showing long-term inflation expectations rose to levels not seen since 2011, greatly reducing expectations of the Fed easing this year and pushing all 3 major stock indexes lower on the day. The 10-year Treasury rate, buffeted by changing Fed expectations, evolving regional bank concerns and uncertainty regarding economic growth, ended the week only slightly higher. For the week, the S&P 500 Index decreased 0.3% to 4,124.08, the Nasdaq Composite Index rose 0.4% to 12,284.71, the Dow Jones Industrial Average fell 1.1% to 33,300.62, the 10-year U.S. Treasury rate increased 3bps to 3.46% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 1.5%.

An uneventful week for European stock indexes. A shortened trading-week, due to Monday’s Coronation Day holiday, saw the FTSE 100 Index fall less than ½ percent. Weaker-than-expected Chinese demand, falling energy and metals prices and concerns the Fed will maintain higher rates for longer than expected, pushed the FTSE 100 Index lower. The BOE’s as-expected 25bp rate hike Thursday and Friday’s report showing meagre UK GDP growth seemingly had little effect on markets. A much weaker British pound (versus the U.S. dollar), however, floored declines in the index. The STOXX 600 Index performed slightly better, ending the week basically unchanged. Gains in healthcare and bank stocks were offset by losses in energy and real estate stocks. Hawkish comments from ECB President Lagarde, saying the ECB’s work fighting inflation was not finished helped cap gains as did concerns of the Fed maintaining rates longer at higher levels than previously expected. For the week, the STOXX 600 Index was basically unchanged, closing the week at 465.48, FTSE 100 Index decreased 0.3% to 7,754.62, the 10-year Gilt rate increased 3bps to 3.81%, the 10-year Bund rate fell 3bps to 2.27%, the British pound and euro weakened 1.5% both with respect to the U.S. dollar.