The Weekly Grind: July 3, 2023

Week in Review

The NASDAQ just put the finishing touches on its best first half ever, rising 31.7% through the end of June. None of the major US indexes have managed to fully erase last year’s decline, but the rally has helped lessen the pain felt by investors in 2022. The S&P 500 Index has risen 15.9%, and the Dow Jones Industrial Average is up 3.8% for the year. Long-term Treasury Notes are flat in 2023, as is the US Dollar, while gold prices have gained 5%.

One Thing to Consider

Jerome Powell last week reiterated his expectation for 2 more interest rate hikes this year, even though he and his colleagues at the FOMC chose to keep their policy rate unchanged at the June meeting. Powell doesn’t expect inflation to reach the Fed’s 2% annual target until sometime in 2025 – that means rates will likely need to remain restrictive for quite some time. They can do so as long as economic activity and the labor market remain resilient. Jobs data will be in focus during this holiday-shortened week.

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Monitoring Macroeconomics

GDP was revised significantly higher to a 2.0% annual rate in Q1, as the drag from inventories and trade lessened somewhat. Economists still widely believe that a recession will hit the United States later this year or early next, even as risks appear to be waning. A ‘soft landing’ – the scenario where the Fed successfully contains prices without creating widespread economic hardship – will depend upon banks’ willingness to keep lending and consumers’ willingness to keep spending as inflation slowly returns to policy makers’ target.

Measures of inflation remain well above the Federal Reserve’s 2% goal, but CPI has decelerated for 11 straight months and measures of core price changes have dropped below 5%. Unemployment, meanwhile, is near 70-year lows, and job creation to start 2023 has been well above the level needed to keep pace with population growth.

What’s Ahead

Here are the key data releases to keep on eye on in the coming days.

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