The Long and Short of it, week ending 26 May 2023
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Major stock market index performances diverged last week with the tech-heavy Nasdaq Composite index strongly outperforming the Dow Jones Industrial Average and the S&P 500 Index. A combination of debt ceiling resolution concerns and hawkish comments from some Fed officials pushed all 3 major indexes at least 1% lower through Wednesday. Nvidia’s much better-than-expected earnings report (released after the close Wednesday) powered chip stocks (and in its wake, other tech stocks) higher Thursday and Friday, lifting both the Nasdaq Composite Index into the green (for the week) and providing upward impetus for the S&P 500 Index. News of potentially significant progress in debt ceiling talks Friday added to Thursday’s gains particularly for the Nasdaq Composite Index. The Dow Jones Industrial Average was the laggard for the week, hurt by its low exposure to tech stocks and greater vulnerability to growing Fed tightening concerns. Stronger-than-expected economic data, including a greater-than-expected core PCE Price Index release, continued low level of initial jobless claims and stronger-thanexpected durable goods orders, raised expectations of a 25bps hike in June (and perhaps at the following meeting), increasing concerns of slowing growth/recessions and dampening the performance of Dow Jones Industrial Average. Reflecting those concerns, the 10-year Treasury rate finished the week 13bps higher with almost all the increase coming from rising 10-year real rates. The U.S. dollar behaved similarly, strengthening over the week. For the week, the S&P 500 Index rose 0.3% to 4,205.45, the Nasdaq Composite Index gained 2.5% reaching 12,975.69, the Dow Jones Industrial Average decreased 1% to 33,093.34, the 10-year U.S. Treasury rate increased 13bps to 3.81% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 1.0%.
European indexes moved lower last week pressured by weak Chinese economic data, U.S. debt ceiling concerns and continued higher-than-expected inflation. Luxury stocks fell sharply last week, affecting both the STOXX 600 and FTSE 100 Indexes, reacting to weak Chinese demand. Surging UK core inflation (it recorded a 31-year high) added to downward price pressures by increasing expectations of further BoE (and ECB) rates increases and as a result slower economic growth. Declining German consumer sentiment also contributed to lower index levels. Markets recovered some loses Friday, however, reacting to positive news regarding progress in U.S. debt ceiling talks. The FTSE 100 Index also benefited from a better-than-expected retail sales release - ameliorating inflationrelated consumer-demand concerns - and from a weaker British pound (versus the U.S. dollar). The 10-year Gilt rate, reflecting increased inflation expectations, surged 35bps on the week. For the week, the STOXX 600 Index decreased 1.6% to 461.41, the FTSE 100 Index fell 1.7% to 7,627.20, the 10-year Gilt rate rose 35bps to 4.34%, the 10-year Bund rate increased 11bps to 2.54%, the British pound and euro weakened 0.8% and 0.7%, respectively, both with respect to the U.S. dollar.
Top performing ETPs over the week
| . | 3x Long ETPs | 3x Short ETPs | ||
|---|---|---|---|---|
| UK | +3x Rio Tinto (3LRI) | -2.2 % | -3x Rolls Royce (3SRR) | +13.1% |
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The Long and Short of it, week ending 26 May 2023
