Looking Past the Headline… – Halyard’s Weekly Wrap – 7/21/23

The economic data this week was decidedly mixed, casting some doubt on the Fed’s likelihood to raise the overnight rate at the upcoming FOMC meeting.  The June Retail Sales report came in at 0.2% month-over-month, well below the 0.5% expectation.  But that number was pulled lower by a dip in gasoline prices and building materials.  Looking past the headline to what the BLS calls the control group, the section more attuned to the consumers propensity to spend, the report told an entirely different story.  For the month the control group spending increased 0.6%, led by online shopping.  Moreover, the May retail sales results were revised higher from 0.3% to 0.5%, fortifying Chairman Powell’s message that monetary policy is not tight enough.

The housing data this week told a slightly different story with housing starts and existing home sales both coming in below consensus expectation, as the high mortgage rates discourage all but those with a necessity to buy a home.

Earnings reported this week were relatively upbeat, with Bank of America and Morgan Stanley surprising to the upside and the various regional banks reporting in line with expectations.  After the banking panic earlier this spring we’re happy to have the sector report “ho hum” results.

Apparently, the stock market was happy with earnings too, as the S&P 500 continues to trade higher.  For the week, the index is up approximately 1% and just shy of its 52-week high.  On the other hand, the bond market was not so happy with the news.  The two-year note is closing out the week at 4.85% and well above the low yields touched earlier this year as investors absorb the increased supply of notes and in anticipation of the next rate hike.

Next week is a fairly light one for economic data, but the Fed’s decision on the overnight rate on Wednesday will command attention.  The consensus expectation is that the committee will raise the overnight rate another 25 basis points and given Chairman Powell’s decidedly hawkish comments earlier this month we don’t disagree.  Also, of note next week, the BEA will release the advance look at Q2 GDP.  The expectation is the economy grew at 1.7% in the quarter.