Weekly Market Update Monday 3rd July 2023

Weekly Market Update Monday 3rd July 2023

The NASDAQ recorded its best first half of the year in 40 years as it rose 32%, led by a handful of large technology companies. Whilst year to date returns in equities have been dominated by mega cap growth names, the rally broadened this week with small-caps and value shares outperforming, and the equal-weighted S&P 500 Index outpacing its market-weighted counterpart. One of the Nasdaq’s top constituents, Apple, hit a record high during the week, with the company now valued at more than $3 trillion, marking a first for a publicly traded company.

The latest reading on first-quarter US GDP was released last week, showing the economy grew by a better-than-expected 2% to start the year, powered primarily by a jump in personal consumption. Estimates for the second-quarter signal positive, but slower growth, which may be the trend as we move through the year. The health of the economy has benefitted from a strength in household services and discretionary spending, with the resiliency of the consumer directly traced to the strength of the labour market, which remained on display in the first half of the year.

The U.S. Federal Reserve’s preferred gauge for tracking inflation showed that consumer prices rose in May at the slowest monthly pace in two years. The Personal Consumption Expenditures Price Index rose at a 3.8% annual rate, down from a revised 4.3% figure in April. Excluding volatile food and energy prices, core inflation rose 4.6% in May versus 4.7% in April. Annual inflation in the eurozone slowed for a third month in June to 5.5% from 6.1% in May, according to an initial estimate from the European Union’s statistics office. The result was lower than the 5.6% forecast by economists however core inflation—which excludes energy and food prices—ticked up to 5.4% from 5.3%.

Manufacturing activity in China contracted for a third straight month in June. The manufacturing purchasing managers’ index was 49, up from 48.8 in May but below 50, the level that indicates an expansion in activity. China’s economic recovery is slowing in various sectors though the country’s prime minister claimed that the economy was still on track to reach the government’s 5% annual growth target.

The major U.S. stock indexes regained the ground they had lost the previous week as generally positive economic data lifted the S&P 500, the NASDAQ, and the Dow more than 2% each. The Europe 600 Index rallied 1.94% on hopes that China would do more to boost consumption and that lower-than-expected inflation data could mean that interest rates are near their peak. Stocks ended mixed in China as weak economic indicators offset the optimism that the government might implement additional measures to bolster economic growth. The Shanghai Stock Exchange Index gained 0.13% in local currency terms whilst in Hong Kong, the Hang Seng Index inched up 0.14%. Over in the UK, the FTSE 100 managed to record a 1.18% return for the week despite Bank of England (BoE) Governor Andrew Bailey stating that UK interest rates are likely to stay higher for longer than financial markets expect and derivative markets indicating borrowing costs could rise from 5% now to 6.5% by the end of the year.