The Long and Short of it, week ending 19 May 2023
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Debt ceiling resolution expectations drove most of last week’s stock market performance though good earnings reports and decent economic news also contributed. Early week uncertainty surrounding progress on a debt ceiling compromise and weaker-than-expected retails sales moved the Dow Jones Industrial Average and the S&P 500 Index lower through Tuesday and capped Nasdaq Composite Index gains. Reports of progress in debt ceiling talks Wednesday and Thursday along with lower-than-expected initial jobless claims (Thursday) and the Atlanta Fed’s revision higher to its Q2 GDP estimate reduced concerns of recession, pushing stock indexes substantially higher. Fed Chair Jerome Powell’s comments suggesting tighter bank credit conditions (resulting from regional bank stress) may slow growth and House Speaker Kevin McCarthy’s announcement of a pause in debt ceiling talks moved all 3 indexes lower on Friday, reversing intraday gains. The 10-year Treasury rate increased 22bps last week, moving higher each day of the week. 10-year real rates increased 15bps (to 1.43%) while 10-year inflation expectations rose 7 bps (to 2.25%). For the week, the S&P 500 Index rose 1.6% to 4,191.98, the Nasdaq Composite Index climbed 3.0% to 12,657.90, the Dow Jones Industrial Average increased 0.4% to 33,426.43, the 10-year U.S. Treasury rate increased 22bps to 3.68% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 0.5%.
A mixed weak for European stocks with the STOXX 600 Index finishing up about 1% and the FTSE 100 Index finishing basically unchanged. European stock markets benefited from positive progress reports on the resolution of the U.S. debt ceiling but suffered from concerns of continued central bank tightening. Falling German wholesale prices and weak euro zone industrial production numbers (increasing expectations of less aggressive ECB monetary policy) helped move the STOXX 600 Index higher Monday while hopes of a BoE pause in rate increases and rebounding real estate stocks helped lift the FTSE 100 Index higher. U.S. debt ceiling concerns, weak Chinese economic data and poor performing energy stocks, however, weighed on markets dragging both indexes lower Tuesday and Wednesday. U.S. debt ceiling resolution optimism pushed European stock prices higher Thursday and Friday (markets closed before the debt ceiling talks pause was announced) though UK markets lagged European markets due to poor earnings reports from the telecom industry (i.e., Vodafone and BT Group). For the week, the STOXX 600 Index increased 0.7% to 468.85, the FTSE 100 Index was basically unchanged at 7,756.87, the 10-year Gilt rate increased 18bps to 3.99%, the 10-year Bund rate increased 16bps to 2.43%, the British pound and euro weakened 0.1% and 0.4%, respectively, both with respect to the U.S. dollar.
Top performing ETPs over the week
| . | 3x Long ETPs | 3x Short ETPs | ||
|---|---|---|---|---|
| UK | +3x Rolls Royce (3LRR) | +15.3 % | -3x Vodafone (3SVO) | +22.8% |
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The Long and Short of it, week ending 19 May 2023
