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July 22, 2023 Market Update

U.S. Treasury yields edged higher last week on economic news indicating that the U.S. economy is doing just fine.  The Fed is due to meet on July 25th and 26th to discuss monetary policy, and the markets are widely expecting the central bank to announce an interest rate hike when its meeting concludes.  Fed funds futures are forecasting that the central bank will lift rates one more time at the July 26th policy meeting.  

Second quarter earnings season is in full swing and so far the reports have been mostly positive.  FactSet reports that 18% of S&P 500 companies have reported actual results for this year’s second quarter to date.  Of these companies, 75% have reported earnings above estimates.  

Although the stock market has responded positively to the earning news, the tech-heavy Nasdaq Composite Index edged lower, dragged down in part by large declines in Netflix and Tesla, which were triggered by their weaker-than-expected earnings reports.

The bulls are running rampant on Wall Street again, it seems.  The Wall Street Journal reports that retail investors are more optimistic about the outlook for stocks than they have been since 2021.

Shoppers appear to be getting more optimistic as well.  The University of Michigan’s consumer sentiment survey reached 72.6 in July.  That’s the highest reading since September 2021.

Why are investors and consumers alike focusing on the sunny side of life?  I’m confident that the sharp drop in the inflation rate has something to do with it.  In June, the Consumer Price Index rose by just 3.0% vs. the year-ago level -- a remarkable decline from the 9.1% rate in June 2022.

Another factor is the amazingly resilient jobs market.  Initial claims for unemployment benefits for the week through July 20th fell to their lowest level since May, and the unemployment rate for June was just 3.6%.  Better yet, wages surpassed the inflation rate for the first time in two years, with inflation-adjusted average hourly wages rising by 1.2% in June, according to the Labor Department.

So, there are good reasons to be optimistic, and generally speaking optimism is a good thing.  It’s when optimism turns to euphoria that things can get ugly.  That has not happened yet, but it’s something to keep an eye out for.

That’s all for now.  Have a great weekend, and invest wisely my friends.