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The Long and Short of it, week ending 21 July 2023

Posted: 25 July, 2023

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

Publication Type: Market Commentaries

The Long and Short of it, week ending 21 July 2023

Stock markets moved higher again last week though major indexes diverged with the Dow Jones Industrial Average markedly outperforming the Nasdaq Composite and S&P 500 Indexes. All 3 indexes moved sharply higher through Wednesday, rising on strong big-bank earnings reports (from the previous week as well) and on solid regional bank results showing deposits had stabilized. (In fact, through Wednesday, the Nasdaq Composite Index had slightly outperformed the other 2 indexes.) A weaker-than-expected June retail sales release Tuesday increased expectations of less aggressive Fed monetary policy also supporting stock prices. Following disappointing earnings reports from TSLA, NFLX and TSMC, tech stocks moved substantively lower with the Nasdaq Composite Index finishing the day down 2%. Interestingly, Thursday’s better/lower-than-expected initial jobless claims renewed “higher-rates-for-longer” concerns, pushing 10-year Treasury rates and the U.S. dollar higher while at the same time propelling the Dow Jones Industrial Average ½ percent higher. For the week, the S&P 500 Index increased 0.7% to 4,536.34, the Nasdaq Composite Index fell 0.6% to 14,032.80, the Dow Jones Industrial Average rose 2.1% to 35,228.48, the 10-year U.S. Treasury rate increased 1bp to 3.84% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 1.2%.

European stock indexes moved higher again last week with the FTSE 100 Index strongly outperforming the STOXX 600 Index. Monday, the only down day last week for both the STOXX 600 and FTSE 100 Indexes, saw markets move lower on weaker-than-expected Chinese GDP growth. Luxury and commodity-linked stocks, in particular, suffered from concerns of faltering Chinese economic growth. Stock prices moved higher the remainder of the week, however, benefiting directly from a lower-than-expected UK inflation reading increasing expectations and hopes of a BoE pause sooner than later. UK homebuilder stocks, for example, moved sharply higher last week. Strong U.S. bank earnings also lent support to European stock markets. Commodity-linked stocks also contributed to index gains, reversing early week losses following Chinese announcements of additional economic stimulus, oilrelated supply concerns and Russia’s withdrawal from the Black Sea export agreement. 10-year Gilt rates fell over 10bps last week, reacting to the better-than-expected UK inflation numbers and the British pound weakened as well, aiding FTSE 100 Index performance. For the week, the STOXX 600 Index increased 1.0% to 465.40, the FTSE 100 Index rose 3.1% to 7,663.73, the 10-year Gilt rate fell 15bps to 4.31%, the 10-year Bund rate decreased 4bps to 2.44% and the British pound and euro weakened 1.8% and 0.9%, respectively, both versus the U.S. dollar.