Last week was very low volume for the market as many investors extended the Fourth of July break into a four-day weekend. After the holiday break, investors found some excuses to take profits following the strong first half of 2023 for the market. Geopolitical angst and concerns about global growth were part of the mix following the news that Services PMI readings for June out of China and the eurozone were weaker than expected. Additionally, there were media reports saying that the U.S. is looking to restrict China’s access to cloud computing, and that China implemented new rules forcing foreign entities to request permission for the export of gallium and germanium.
On Thursday, a stronger than expected ADP Employment Change and ISM Non-Manufacturing Index for June caused Treasury yields to move up sharply. The increase in rates stoked valuation concerns in the stock market as participants considered the possibility of the Fed being more aggressive than expected with its tightening action. A 25 basis points rate hike in July has been solidified while expectations for rate hikes at future meetings increased.
Yields did pull back from their peak levels on Friday, though, after the Employment Situation Report for June indicated that employment gains were less robust than the ADP report estimated. The official employment report also showed an increase in the average workweek and a 0.4% increase in average hourly earnings, which bodes well for continued spending growth that will support continued growth in the economy. Overall, the employment report supported the soft landing narrative for the economy. Still, the bump in rates stoked valuation concerns in the stock market as participants considered the possibility of the Fed being more aggressive than expected with its tightening action. A 25 basis points rate hike in July has been solidified while expectations for rate hikes at future meetings increased.
The S&P 500 ended the week lower by 1.2%. Not surprisingly, only one of the 11 S&P 500 sectors logged a gain this week — real estate (+0.2%) — while the utilities (-0.2%), communication services (-0.3%), and consumer discretionary (-0.3%) sector saw the slimmest declines. The worst performers included the health care (-2.9%), materials (-2.0%), and information technology (-1.5%) sectors.