The Pulse on the Economy and Capital Markets: July 3 – 7, 2023
July 13, 2023
To Summarize: Recent economic data signals to investors that interest rates will remain higher through 2023, leading to a weaker start for the markets in the third quarter. Despite the services sector expanding and supply chains showing positive improvements, the manufacturing sector continues to struggle. We unpack this and more in the July edition of The Pulse.
In the Markets: The stock and bond markets had a slow start to the third quarter as concern over how long interest rates will remain high grows. Big tech companies, such as Apple, Microsoft, Nvidia, Meta and Tesla drove the S&P 500’s gains during the first half of the year, yet since the end of May, performance has broadened out toward all companies. When more companies participate in the upside, it can reflect a more positive outlook for the wider economy.
The Federal Reserve Makes Waves: Any chance of interest rates lowering have faded away after recent economic data and minutes from the Federal Reserve’s last meeting were released. Investors have expressed concerns that rates will remain higher and for longer. In fact, the markets are now expecting a quarter-point rate increase by September and about a 50% chance for a second hike by the end of the year. Investors believe the Federal Reserve will then pivot and begin reducing rates by mid-summer 2024.
A Tale of Two Cities: Travel, leisure, restaurants and entertainment (i.e., concerts) continue to be in demand as recent ISM survey results highlight that the service sector outperformed expectations in June. In contrast, the manufacturing sector has remained negative for 10 months and leading indicators point towards a continued weakness. However, healthier supply chains have reduced online pricing, which benefits consumers and businesses.
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About the Author
Simeon Wallis
Simeon Wallis, CFA, is a Partner, the Chief Investment Officer of Aprio Wealth Management, and the Director of Aprio Family Office. Each month, Simeon brings you insights from the financial markets in Aprio’s Pulse on the Economy. To discuss these ideas and how they may affect your current investment strategy, schedule a consultation.