“We’re Not Finished Yet” According to the FOMC Post Meeting Statement
The Federal Open Market Committee (FOMC) voted to raise its target rate on overnight interest rates from 5.00% – 5.25% to 5.25%-5.50% after the July 2023 meeting. This 25 bp move follows a pause in rate hikes decided during the June meeting. The Fed still maintains a hawkish stance after raising the Fed Funds rate to its highest level in 22 years and leaving quantitative tightening (QT) targets unchanged.
The implementation note following the meeting spells out QT implementation to reduce the Fed’s balance sheet as:
“Roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.”
“Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month.”
QT is an important part of the Federal Reserve Bank reducing the stimulus effect of having injected, through quantitative easing (QE), substantial amounts of money into the U.S. economy.
Words in the statement, particularly those changed from the prior meeting, are placed under the spotlight. In June, the FOMC members felt the U.S. economy was “growing” at a “modest” pace. Now it sees “more growth”—at a “moderate” level. This indicates that they may believe they have a higher need to continue tightening credit conditions.
At the previous meeting a Summary of Economic Projections (SEP) for the Fed Funds Rate indicated the Fed expected two additional 25 bp increases. While no SEP is available after the July meeting, the view the economy has become stronger, would suggest that at a minimum, another 25 bp is likely.
The FOMC as the monetary policy arm of the Federal Reserve is, as it says, “data dependent” when determining what tightening or other moves may be appropriate in the future.
This Trading Week May be Pivotal in the Push and Pull Between Bulls and Bears
The overwhelming focus this week is on the FOMC meeting Tuesday and Wednesday. There is widespread expectation that after skipping a chance to raise rates in June, the Federal Reserve will bump the overnight lending rate up by 25 bp. This would push the target to 5.25%-5.50%. Policymakers have been clear that they don’t believe they are finished in their battle against inflation but have always maintained their actions are data-dependent. Data on inflation over the past month indicate previous moves could be having the desired impact. If the FOMC determines inflation is trending toward its goal of 2% and is expected to stay on the path, it may not find another hike prudent. However, the Fed won’t see a June reading on its preferred inflation indicator, the PCE deflator, until after the FOMC meeting.
Monday 7/24
• 8:30 AM ET, The Chicago Fed National Activity Index in June is expected to have risen to just above neutral at 0.03 (zero equals historical average growth). This would be up from a lower-than-expected minus 0.15 in May.
• 9:45 AM ET, The Purchasing Managers Index Composite flash reading has been above 50 in the last five reports with the consensus for July at 54.0 versus June’s 54.4. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster output is growing (contracting).
Tuesday 7/25
• 9:00 AM ET, The Federal Open Market Committee meeting to decide the direction of monetary policy begins.
• 1:00 PM ET, Money Supply is forecast to show that M2 for the month of June rose 0.6% to $20,805.5 billion. The markets resumed focusing on money supply as a way to view the progress and impact of quantitative easing. It helps decipher how the Fed’s actions are filtering through the economy.
Wednesday 7/26
• 10:00 AM ET, New Home Sales are expected to slow after a much higher-than-expected 763,000 annualized rate in May. Junes are expected to have slowed to 727,000.
• 10:30 AM ET, The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the US, whether produced here or abroad. The inventory level impacts prices for petroleum products.
• 2:00 PM ET, The FOMC announcement. After holding steady in June, the Fed is expected to raise its policy rate by 25 basis points to a range of 5.25 to 5.50 percent.
• 2:30 PM ET, The post FOMC Chair Powell press conference helps market participants understand the Fed’s decision(s), if any, during their two-day meeting.
Thursday 7/27
• 8:30 AM ET, Durable Goods Orders are forecast to have risen 0.5 percent in July following June’s 1.8 percent jump. Ex-transportation orders are expected to edge 0.1 percent lower as are core capital goods orders, after also coming in high the previous reporting period.
• 8:30 AM ET, Second-quarter GDP is expected to slow to 1.5 percent annualized growth versus first-quarter growth of 2.0 percent. Personal consumption expenditures, after the first quarter’s burst higher to plus 4.2 percent, are again expected to rise but by only 1.5 percent. Whether or not the US has entered a recession is substantially hinged on whether GDP is negative for a prolonged period (typically two quarters).
• 4:30 AM ET, The Fed’s Balance Sheet is expected to have decreased by $22.371 billion to $8.275 trillion. Market participants and Fed watchers look to this weekly set of numbers to determine, among other things if the Fed is on track with its stated quantitative tightening (QT) plan.
Friday 7/28
• 8:30 AM ET, Jobless Claims Jobless for the week ended July 22 are expected to come in at 235,000 versus 228,000 in the prior week.
• 8:30 AM ET, Wholesale Inventories are expected to increase 0.1 percent (advance report) for June, it was unchanged in May.
• 10:00 AM ET, Consumer Sentiment is expected to end July at 72.6, unchanged from July’s mid-month flash and more than 8 points higher from June. Year-ahead inflation expectations are expected to hold at the mid-month’s 3.4 percent which was one tenth higher than June.
What Else
The week ahead is also set to be the busiest one of earnings season. Thursday will be the most intense day. About 30% of the S&P 500 will give their financial updates during the week, including Alphabet, Microsoft and Meta. Several big pharma companies are getting ready to report and it’s a big week for industrial companies and big oil as well.
Sign up for Channelchek updates on this week’s FOMC meeting as announcements unfold, and to be updated on other critical information.
There will be a number of Roadshows held during the week in South Florida and St. Louis. Learn more about who’s presenting and how to attend by clicking here.
Why Economic Data Doesn’t Reconcile With Personal Experience
Does grocery shopping and eating out cost the same as it did in 2019? Government statistics on personal consumption and expenditures would seem to indicate they do. Most of us know that we are paying noticeably more to eat than we did a few years ago. Below is an article explaining the flaws in government data and the nuances that hide actual experience from this set of numbers. It is written by Dr. Jonathan Newman, he is a Fellow at the Mises Institute, his research focuses on inflation and business cycles, and the history of economic thought. – Paul Hoffman, Managing Editor, Channelchek.
Economist Jeremy Horpedahl dismissed the silly claim by anticapitalists that capitalism must engineer food scarcity for the sake of profits. He presented a graph of Bureau of Labor Statistics (BLS) data demonstrating a substantial decrease in household food expenditure as a percentage of income—from 44 percent in 1901 to a mere 9 percent in 2021. This is something to celebrate and certainly can be attributed to the abundance of market economies.
But when Jordan Peterson asked, “And what’s happened the last two years?” I went digging. First, I confirmed Horpedahl’s observation: the amount we spend on food as a proportion of our budget has fallen dramatically. Second, I saw what Peterson hinted at: a significant spike in food spending when covid and the associated mess of government interventions hit (figure 1).
Figure 1: Food and personal consumption expenditures, 1959–2023
Source: US Bureau of Economic Analysis, FRED.
Interestingly, the spike looks like a blip. Someone oblivious to the events of the past few years might see this chart and say, “Yeah, something strange happened in 2020, but it looks like everything is back to normal.” I’m certain that this doesn’t align with anyone’s experience, however. Even today, no one would say that restaurant visits and grocery store trips cost the same as they did in 2019.
What changed in 2020? Why does this graph not feel right? Assuming the Bureau of Economic Analysis data isn’t totally off (and it is important to be skeptical of government data), why would a January 2023 report on consumer inflation sentiment conclude that “there is a disconnect between the inflation data reported by the government and what consumers say they now pay for necessities”?
The difference lies in the qualitative aspects of our experience as consumers. Spending proportions may have returned to their trend, but that isn’t the whole story. “Shrinkflation” and “skimpflation” have taken their toll on the quantity and quality of the food we enjoy—or maybe the food we tolerate is more apt.
Businesses know that charging higher prices is unpopular, especially when many consumers are convinced that greed is driving price inflation. So businesses resort to reducing the amount of food in the package, diluting the product but keeping the same amount, or otherwise cutting corners in ways that consumers may not immediately notice.
Thankfully, websites such as mouseprint.org document some of these cases:
Sara Lee blueberry bagels reduced from 1 lb., 4.0 oz. per bag to 1 lb., 0.7 oz.
Bounty “double rolls” reduced from 98 sheets to 90 (how is it still a “double roll”?)
Gain laundry detergent containers reduced from 92 fl. oz. to 88 fl. oz. without any obvious difference in the size of the container
Dawn dish soap bottles reduced from 19.4 fl. oz. to 18.0 fl. oz.
Green Giant frozen broccoli and cheese sauce packages reduced from 10.0 oz. to 8.0 oz. with no change in the advertised number of servings per package
In some instances of skimpflation, the volume or weight of a product remains the same, but the proportions change. For example, Hungry-Man Double Chicken Bowls (a frozen dinner of fried chicken and macaroni and cheese) maintained a net weight of 15.0 oz., but the protein content dropped from 39 grams to 33 grams.
And while firms are reducing the quantity and quality of the food they sell, consumers are also choosing to purchase less food and even lower-quality food. The January 2023 report on consumer inflation sentiment shows that 69.4 percent of respondents “reduced quantity, quality or both in their grocery purchases due to price increases over the last 12 months.”
We have also seen a widespread and long-lasting change in customer service at restaurants. Many restaurants switched to providing only takeout for months or years. Even though the dine-in option has been reintroduced at some restaurants, the service hasn’t quite been the same, with QR-code menus, shorter hours, less staff, and terse demeanors.
It’s not surprising that the massive government interventions, including creating trillions of new dollars, would have countless effects—some that show up in various statistics but many that do not. For example, if we look back at the period of German hyperinflation, we see surprisingly boring data on food spending proportions (figure 2).
Figure 2: Household expenditures in Germany, 1920–22
Historian Gerald D. Feldman commented on the German household expenditure data in a way that sounds familiar: “As one study after another pointed out, however, the full impact of these changes had to be understood in qualitative terms.” There was “reduced quality and quantity of the food consumed” and “poorer quality clothing,” among other qualitative changes.
Government statistics are unable to capture these subtleties. This should be obvious—your personal experience as a consumer is more than just the price you pay for a certain weight of food. We aren’t merely machines; we don’t describe our lives in miles per gallon or kilowatt hours.
This is why Ludwig von Mises attacked the conceited aggregates and indexes purported to measure various aspects of consumers’ lives: “The pretentious solemnity which statisticians and statistical bureaus display in computing indexes of purchasing power and cost of living is out of place. These index numbers are at best rather crude and inaccurate illustrations of changes which have occurred.”
He concludes: “A judicious housewife knows much more about price changes as far as they affect her own household than the statistical averages can tell.”
The Trading Week is Light on Data and Heavy On Quarterly Earnings Reports
After last week’s lower-than-expected CPI and PPI inflation readings, the markets are far less certain what the FOMC will decide at their policy meeting July 25-26. Clarity is not going to come from addresses by any Fed Presidents as they enter a blackout period where they are forbidden to speak on the subject between July 15 and July 27. One report that the markets will be focused on during the week involves unemployment, which, if up, may cause the markets to rally – remember we are still in a period where bad economic news causes a positive stock market reaction.
Investors looking for direction may find it in the earnings reports as major banks, metals producers, and closely followed tech companies will be releasing their quarterly earnings reports.
Monday 7/17
• 8:30 AM ET, The New York State Manufacturing Index is expected to drop to negative 7 for June after unexpectedly climbing 38 points to +6.6 in May 2023, from a four-month low of -31.8 in May.
Tuesday 7/18
• 8:30 AM ET, The consensus for Retail Sales for June is up 0.4% after unexpectedly rising 0.3% month-over-month in May, following a 0.4% increase in April, which beat forecasts of a 0.1% decline. It’s clear the ability to forecast has been economic numbers, especially consumer activity has been difficult.
• 8:55 AM ET, The Johnson Redbook Index is forecast to show a year-over-year, same week, increase of 1.1%, for the week ending July 15. This would follow a 1.6% increase the prior reading. The Redbook is a sample of large US general merchandise retailers representing about 9,000 stores. By dollar value, the Index represents over 80% of the equivalent ‘official’ retail sales series collected and published by the US Department of Commerce.
• 9:15 AM ET, Industrial Production is expected to have risen by 0.1% in June, after declining by 0.2% from a month earlier in May.
• 9:15 AM ET, Manufacturing Production is expected to be flat month over month for June after rising 0.1% in May.
• 9:15 AM ET, Capacity Utilization is expected to have remained in a non-inflationary low 79.5% rate during June. When industries are bumping up against capacity, costs will increase as operations become less efficient because less effective resources are called on to produce, thus increasing the cost of each unit of production.
• 10:00 AM ET, Federal Reserve Vice Chair for Supervision Michael S. Barr will be speaking on fair lending practices at the National Fair Housing Alliance National Conference. The Fed is in a blackout period this week, so it is expected that there will be no discussion of monetary policy.
Wednesday 7/19
• 8:30 AM ET, Building permits consensus forecast for June is for 1.505 million after May’s strong 1.486 million.
• 8:30 AM ET, Housing Starts month over month for May increased by 21.7%, the forecast is for a decline of 10.2% for June.
• 10:30 AM ET, The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the US, whether produced here or abroad. The inventory level impacts prices for petroleum products.
Thursday 7/20
• 8:30 AM ET, Initial Jobless Claims are expected to have increased the week ended July 15 to 245,000 from 237,000 the prior week. Employment data ahead of the July 25-26 FOMC meeting, in the absence of any fresh inflation data until the 28th has the potential to move markets.
• 10:00 AM ET, Existing home sales in the US, which include completed transactions of single-family homes, townhomes, condominiums, and co-ops, is expected to decline by 1.2% month over month for June. This would follow a small increase of 0,2% the previous reading.
Friday 7/21
• No major economic releases scheduled.
What Else
The FOMC meeting is Tuesday and Wednesday during the last full week in July. The Fed can do one of three things, lower rates, raise rates, keep rates unchanged. Like all good multiple choice questions, one of these answers can be eliminated. On Thursday of last week (July 13), Federal Reserve Board Gov. Christopher Waller said he was not swayed by June’s benign consumer inflation data and said he wants the central bank to go ahead with two more 25-basis-point rate hikes this year. “I see two more 25-basis-point hikes in the target range over the four remaining meetings this year as necessary to keep inflation moving toward our target,” Waller said this in an address to The Money Marketeers on NYU, a bond market club with some of the most powerful fixed income professionals as members. If the Fed is data dependent and there is little new data since the last inflation readings, Waller’s position is not likely to change.
Is the U.S. economy headed toward a soft landing? While rare, the numbers are beginning to argue in favor on the side of a soft landing versus a hard one. An economic soft landing is a situation in which the Federal Reserve is able to slow economic growth without causing a recession. A hard landing, on the other hand, is a situation in which the central bank’s efforts to slow down economic growth lead to a recession. Recent inflation reports, employment numbers, and economic growth figures are looking more and more like monetary policy over the past year and a half, may be defying past performance; the U.S. might be able to avoid a situation where the economy shrinks (negative growth).
Background
The Federal Reserve has been facing a difficult challenge for almost two years as inflation spiked well above the Fed’s 2% target. In fact increases in prices were at a 40-year high as inflation began to soar toward double-digits. Fed monetary policy, which effectively controls the money in the economy, that in turn impacts interest rates, has been acting to raise rates to bring inflation under control. Less money increases the cost of that money (rates), which dampens economic activity.
There has been, and continues to be, a risk that the Fed raises interest rates too high or too quickly, this is the hard landing economic path. The hard landing scenario is more common than soft landings.
The Federal Reserve has a miserable record of achieving soft landings. There have been a few occasions when the Fed has been able to slow down economic growth without causing a recession. One example of success is 1994-1995. During this period the Fed raised interest rates by 2.5% from a starting point of 4.25% in order to bring inflation under control. However, the economy continued to grow during this period, and there was no recession.
Today’s Scenario
The current state of the U.S. economy is uncertain. Inflation is at a 40-year high, and the Fed has been raising interest rates in an effort to bring it under control. However, there is a risk that the Fed will raise interest rates too high or too quickly, which could lead to an economic hard landing, with job losses and negative growth. In fact, after an FOMC meeting in November, Fed Chair Powell said it would be easier to revive the economy if they overtighten, than it would be to lower it if they don’t tighten enough. So to the Fed Chair, a hard landing is better than no landing at all.
There has been a high level of concern amongst stakeholders in the U.S. economy. One reason is that the U.S. economy is already slow. GDP growth in the first quarter of 2023 was 2.0%, and it is expected to slow in the second quarter. Maintaining growth while pulling money from the system to reduce stimulus is a difficult maneuver. In fact, it usually ends as a hard, undesirable economic landing.
Another factor that is of concern this time around is the state of the housing market. Home prices rallied with low interest rates during and post pandemic. A fall-off in housing would have a ripple effect throughout the economy, leading to job losses and lower consumer spending. So far, housing has held up as new home sales are strong, and demand for existing homes remains elevated as homeowners with low mortgage rates are deciding to stay put.
Where from Here?
On Monday (July 11), Loretta J. Mester, president and CEO of the Federal Reserve Bank of Cleveland, warned during an address in San Diego that the central bank may need to keep hiking rates as inflation has remained “stubbornly high.” Fed governors go into a blackout period on July 15 as they always do before an FOMC meeting. That meeting will be held on July 25-26. So there is no telling if the voting FOMC members are going to dial back their hawkishness in light of this week’s more favorable CPI report that shows yoy inflation at 3%.
The Fed’s favored inflation gauge is PCE. The next PCE report is not to be released until July 28, after the July FOMC meeting. The previous report showed that in May, inflation was running at 3.8% over 12 months.
The banking system, which showed some cracks back in March, seems to be shored up; although some problems still exist, a full-scale banking crisis does not seem likely. The Fed would obviously like to keep it this way.
Employment gains were the smallest in 2-1/2 years in June, however the unemployment rate is close to historically low levels and wage growth is still strong, so although wages are not fully working their way into the final cost of goods or services, the industries having to pay the higher wages are likely absorbing some of the cost, which could pull from profits.
Part of the Fed’s tightening has been the less talked about quantitative tightening. This reduces the Fed’s balance sheet which swelled as part of the reaction to the pandemic. Reducing this in a meaningful way will take time, but even if the Fed remains paused on rate hikes, there is still $90 billion scheduled to be pulled from the economy each month as maturities will be allowed to mature from the Fed’s holdings without being rolled. This my eventually cause U.S. Treasury rates and mortgage rates to tick up as increased Treasury borrowing, and decreased Fed ownership may put downward pressure on prices.
Take Away
The recent CPI report is causing some that argued a soft landing is achievable to celebrate and those that thought it impossible to consider it a possibility. The chances appear greater, and a soft landing is certainly a desirable outcome for stock prices and U.S. economy stakeholders. From here, there are a number of factors that can increase the risk of a hard landing, they include the pace of additional interest rate hikes, and the behavior of the housing markets. We’re entering a period where we will not hear any commentary from Fed governors, and the next major inflation indicator comes after the FOMC meeting, so markets will be on the edge of their seats until July 26 at 2 PM Eastern.
This Full Trading Week May Decide the Direction of the Markets for the Rest of 2023
Inflation will be a big focus this week as the CPI, PPI, and import and export prices for June will be released in this order at 8:30 on the last three days of the week. These economic reports are the final inflation readings the Federal Reserve will get before its July 25-26 meeting. The Beige Book also has the ability to alter market sentiment as this is a large part of the data and discussions used at the FOMC meeting. The Beige Book, which is information from each Fed reporting district, is released on Wednesday afternoon.
Monday 7/10
• 10:00 AM ET, The second estimate of Wholesale Inventories is a 0.1 percent draw, unchanged from the first estimate.
• 10:00 AM ET, Mary Daley the President of the San Francisco Fed, will be speaking.
• 3:00 PM ET, Consumer Credit is expected to show that consumers borrowed $20 billion more in May. This compares to a $23 billion increase in April.
Tuesday 7/11
• 6:00 AM ET, The National Federation of Independent Business (NFIB) optimism index has been below, and often far below, the historical average of 98 for the past 17 months. June’s consensus is 89.8 versus 89.4 in May.
Wednesday 7/12
• 8:30 AM ET, The Consumer Price Index, or CPI, is expected to show that core prices in June are slowed to a modest 0.3 percent on the month versus May’s 0.4 percent. Overall prices are also expected to rise 0.3 percent. Annual rates are expected to slow sharply at the headline level, to 3.1 from 4.0 percent, and also for the core, to 5.0 from 5.3 percent.
• 10:00 AM ET, The Atlanta Fed Business Inflation Expectations is not one of the more widely watched inflation reports. But in these times of the markets grasping on anything that may foretell where inflation is headed, this number has the potential to be impactful.
• 10:30 AM ET, The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the US, whether produced here or abroad. The inventory level impacts prices for petroleum products.
• 2:00 PM ET, The Beige Book is a report on economic conditions used at FOMC meetings. This publication is produced roughly two weeks before the monetary policy meetings of the FOMC.
Thursday 7/13
• 8:30 AM ET, Employment numbers seemed to be the new razor-sharp focus among Fed watchers. Initial claims for the prior week are expected to be at the 248,000 level.
• 8:30 AM ET, Producer prices in June are expected to rise 0.2 percent on the month versus a 0.3 percent fall in May. The annual rate in June is seen at plus 0.4 percent versus May’s plus 1.1 percent. June’s ex-food ex-energy rate is seen at 0.2 percent on the month and 2.8 percent on the year which would exactly match May’s results.
• 4:00 PM ET, Fed’s Balance Sheet data is expected to show that the Fed holds $8.98 trillion in US debt. The total assets are forecast to drop by $42,602 billion.
Friday 7/14
• 10:00 AM ET, the Consumer SentIment first indication for July, is expected to rise to 65.0 from June’s surprisingly high 64.4.
What Else
Last week the BLS reported the US economy added 209,000 jobs in June. This helped cause the unemployment rate to fall to 3.6%, near its 50-year low. This spurred inflation worries and spooked the bond market, which in turn impacted the broader stock market. Looking at the make-up of the numbers may be less worrisome. It seems the US government has been the last to begin hiring after the pandemic. Excluding government hiring, private sector payrolls grew by only 149,000 in June. This is the slowest since December 2019 and below the 166,000 monthly average in 2017-19.
So the reaction may have been more of a reason for the market to take a breather after a strong June, than increased concern over a hot job market.
Maximum employment is one of the top mandates of the Federal Reserve, so why is it trying to reduce the number of jobs available? On the surface this would seem backwards. But in economics, everything is related, intentionally slowing growth to the point where resources aren’t stressed, can provide a better balance across the Feds other mandates. These Congressional mandates are stable prices, and moderate long-term interest rates.
Current Employment Situation
The most recent U.S. Employment Report was released on July 7th. It showed that payroll employment was still climbing during June, and 209,000 new employees were added to company payrolls. The same report showed that the unemployment rate dropped to a historically low 3.6%, and workers earned 4.4% more than a year earlier (In May, it was 4.3% more).
The markets immediately viewed these strong job gains, coupled with an acceleration of wage increases and the drop in unemployment, as foreshadowing a Fed hike in late July. And also viewed is as increasing the probability of additional tightening before year-end. Employment is high, and the labor market is so tight that employers are increasing what they have paid workers in order to attract suitable personnel.
A day earlier, the payroll company ADP released its National Employment Report, which is produced in collaboration with the Stanford Digital Economy Lab. This report also showed a strong labor market. The private sector (non-government) jobs increased by 497,000 in June. This was approximately double the strong number of new hires from the previous month.
The U.S. Unemployment Rate continues to remain very low despite the Fed’s aggressive efforts to slow the economy and only a modest 2% GDP growth rate. In fact, in April unemployment hit a 50 year low at 3.4% which is just below the June level.
Employment levels in the U.S. are now a key focus of the Federal Reserve (the Fed) in its effort to slow U.S. economic growth to combat persistent inflation well above the Fed’s target. Fed officials have repeated what most market participants know, that achieving lower inflation would be difficult without addressing the increasing prices that employees are receiving for their labor. A strong jobs market pushes wages higher, which filters into higher consumer inflation.
The job market’s continued strength has been somewhat surprising in what appears to be a slowing economy, with consistently low unemployment and solid job growth. This likely reflects unusual dynamics that stem from the novel economy during the pandemic. The economy hasn’t yet balanced out after massive government stimulus, low production, and a changed sense of work among many that are still of working age.
The employment numbers this year show there are still 1.6 job openings for each person that is looking for work. Considering those looking for work and the positions open are largely mismatched, this leaves employers either bidding up what they are willing to pay to attract the right person or producing less than is demanded by the market for their goods or services. Both situations are inflationary.
There are two sides to every problem; while potential employees willing to work represent far fewer workers than there are jobs, there are fewer, of age, adults willing to participate in the labor force. The labor force participation rate now stands at 62.6%, unchanged from the previous four months. Improving labor participation would be a preferred way to address the tightness in the labor market that’s leading to wage inflation, but the Fed doesn’t have the tools to incentivize this. So it is back to raising rates, draining money from the system, and otherwise taking the punchbowl away to end the party.
Good News is Bad News
This is why the Fed is not excited about job growth and low unemployment. And if the Fed isn’t happy, the markets aren’t happy. The bond market selling off in expectation that the Fed is going to raise interest rates lowers bond prices, and the stock market is concerned on many fronts, as high rates increase costs for companies, slow purchases that are typically financed, and with each tick up in rates, bonds and C.D.s become more attractive as an alternative to stocks.
So the good news which is that almost anyone who wants a job can have one, as it turns out, leads to a chain of events that causes concern among those invested in stocks.
But while unfortunate, the Fed actions are long-term good. Inflation quietly erodes the purchasing power of financial assets. So the Fed is focused on what is driving inflation, wage inflation being chief among them.
Take Away
The job market’s continued strength and the wage growth that comes with it creates a perplexing situation for all involved. The Fed has to work to reduce employment pressures, and stock and bond market participants are cheering on bad economic news – this is perplexing for investors of all levels.
Interest Rate Increases are Less Frightening When the Impact is Understood
The fixed income market, and the interest rates market in general have a pronounced role in shaping stock market dynamics and equity investor sentiment. At a minimum, higher rates, the cost of money, when increasing, will most directly impact businesses that borrow as part of their normal activity. Other industries find that growing profits is more difficult in a less direct way. And then there are actually sectors that can benefit from an upward-sloping yield curve. Below we cover five different ways that higher interest rates impact stocks, and mention sectors that may be especially hurt, and some that could even thrive if the rates continue to climb higher.
Background
The U.S. central bank, The Federal Reserve has raised overnight interest rates from nearly 0.00% to near 5.25%. Longer-term rates have not followed in lock-step as other dynamics such as future economic expectations, flight to quality, and Fed yield-curve-control have caused longer rates to continue to lag below short-term interest rates.
In recent days there has been some selling in bonds which has driven longer interest rates up. The overall reason is the rekindled belief that the Fed is not finished tightening after the FOMC minutes from June indicated such. But other factors such as investors doing break-even analysis on longer term bonds and then raealizing they may not be getting paid enough interest to offset inflation, or to benefit them more than rolling shorter maturities that may be paying 200bp higher.
The sudden increase in rates, especially the ten-year US Treasury Note which is a benchmark for many lending rates, including mortgages, has caused stock market participants to feel unsettled. Some of their fears may be justified, some may not be.
Five Ways Higher Interest Rates Impact Equities
#1 Higher Rates Impact on Equity Valuations
One of the primary concerns for stock market investors, when interest rates rise, is the potential impact on equity valuations. As interest rates increase, the discount rate used to value future cash flows is then higher. This can put downward pressure on equity valuations, particularly for stocks with high price-to-earnings ratios. Investors become concerned about the potential decline in stock prices and the overall effect on the market’s valuation levels.
#2 Profitability of Interest Rate-Sensitive Sectors
Some sectors are particularly interest rate sensitive. Utilities for example, might have a couple of things working against them. First off, they are notorious for carrying a high level of debt. As this debt needs to be refinanced (as bonds mature), the new bonds need to be issued at higher rates, increasing the utility’s cost of doing business.
Utilities also are popular investments among dividend investors. As yields on bonds increase, there is more competition for income investors to choose from, at times with lower risk, which makes utility stocks less attractive.
As one might imagine REITs, by definition, all have real estate as underlying assets. Rising interest rates can increase borrowing costs for REITs involved in property acquisitions and development. This can potentially affect their profitability and underlying property valuations.
As with utilities, the REIT sector attracts income investors; if bonds become a more attractive alternative, this creates lower demand for REIT investing.
Financial institutions are certainly impacted, however, depending on the segment within financials, some may benefit from increased profit margins, while others are weighed down by increased costs. Basic banking is borrowing short and lending out longer, then managing the risk of maturity mismatch. As longer-term rates rise relative to shorter rates, these institutions find their earnings spread increases.
In recent years the trend has been, especially for larger banks, to create loans and then sell them. They profit on the servicing side, or administrative fees to create the loan. In this way they are shielded from interest rate mismatch risk, and they can make more loans on the same deposit base (selling the loans replenished the funds they can loan from). So the benefit of rising rates on benchmark securities relative to the banks deposit rates could have much less positive impact than it might have if they held the loans. What may actually happen within these institutions is that they experience fewer loans as consumers and business borrow take fewer loans, thus earning less fee income.
#3 Investors Lean Toward Bond Investments
The return on anything is the present value, versus future value, over time held. Higher interest rates can make fixed-income investments more attractive than low rates compared to stocks. When interest rates rise, more investors prefer a known return in terms of interest payments than an unknown move in stocks valuations. This shift in investor preferences can lead to reduced demand for equities and potentially impact stock market performance.
Investors buying bonds as rates are rising will experience a decrease in the value of their fixed income securities. So, they may be surprised to learn that they avoided stocks because stocks may go down in value, and instead invested in fixed income which mathematically will go down in value when rates rise.
#4 Borrowing Costs for Companies
As mentioned earlier, rising interest rates increase the borrowing costs for companies. This can impact corporate profitability and investment decisions, which in turn can affect stock prices. Companies that rely heavily on debt financing may experience higher interest expenses, potentially squeezing profit margins. Investors become concerned about the potential impact on corporate earnings and the overall financial health of companies in a higher interest rate environment.
Analyzing a company’s capital structure, and looking for signs of low debt levels, or long-term debt that is locked in at the low interest rates of the early 2020’s, may be a good way to filter companies that have a profit advantage over their competitors
#5 Consumer Spending and Business Investment
Consumer spending levels are a direct driver in consumer stocks. When borrowing becomes more expensive, consumers may reduce their discretionary spending. This can impact businesses that rely on consumer demand, potentially leading to lower revenues and profitability. The stocks that tend to hold up more when spending levels decrease are those that produce necessities.
Business investment during periods of rising interest rates can influence investment decisions for businesses. As borrowing costs increase, companies may reduce or delay capital investments, expansions, or acquisitions. This cautious approach can impact economic growth and overall industry development, which can in turn affect its performance, for much longer than a quarter or two.
Take Away
Stock market investors have legitimate concerns about the impact of higher interest rates on their investments. The potential effects on equity valuations, profitability of interest rate-sensitive sectors, investor preferences for fixed-income investments, borrowing costs for companies, and consumer spending/business investment are key factors that contribute to investor apprehension. It is as important for investors to monitor interest rate trends and understand the impacts as it is for them to monitor.
The Federal Reserve released the minutes of its last Federal Open Market Committee (FOMC) meeting. The minutes show the Fed was largely unified behind the pause (no change in monetary policy) decided at the last meeting. The new release also indicates that most members do not believe the Fed has yet tightened enough to reach a 2% inflation target over time, and that the monetary policy committee would eventually have to move rates higher.
The FOMC holds eight regularly scheduled meetings during the year and may call other meetings as needed. The minutes of regularly scheduled meetings are released three weeks after the date of the policy decision. Committee membership changes at the first regularly scheduled meeting of each year.
Synopsis of FOMC Decision
Buying time to assess the impact of the historically aggressive tightening since March 2022 was an overall message one can derive from the most recent Fed report, and inaction. While “some participants” would have agreed to a rate hike in mid-June, in order to assure the inflation fight headway doesn’t reverse, “almost all participants judged it appropriate or acceptable to maintain” the fed funds rate at the 5% to 5.25% level, to ascertain if more is actually needed.
The minutes provided economic projections not available before its release along with other details not provided in the policy statement or press conference after the meeting. Notable among these disclosures is the level of agreement among voting members to pause. “Most of those participants observed that leaving the target range unchanged at this meeting would allow them more time to assess the economy’s progress,” toward returning inflation to 2% from its current level more which is double the target.
The Fed staff forecasts still foresaw a “mild recession” beginning later in 2023, but those at the Federal Reserve actually responsible for policy were concerned with data that showed a continued tight job market and only modest improvements in inflation. Officials were challenged trying to reconcile economic numbers showing a strong economic trend with evidence of possible weakness, for example, household employment figures pointed to a weaker labor market than the payroll numbers indicated, or national income data that seemed weaker than the more stronger readings of gross domestic product.
It is perhaps easier to understand now after the minutes have been released why Federal Reserve Chair Jerome Powell said just following the June meeting that the decision marked a switch in strategy. The U.S. central bank would now be focused more on just how much additional policy tightening might be needed, and less on maintaining a steady pace of increases.”Stretching out into a more moderate pace is appropriate to allow you to make that judgment” over time, Powell said.
While Powell also emphasized a united front among the 18 Federal Open Market Committee members, noting that all of them foresee rates staying at least where they are through the end of the year, and all but two see rates rising. That is confirmed again by the minutes, which show some misgivings among the more dovish policymakers. Atlanta Fed President Raphael Bostic, for instance, has said he thinks rates are sufficiently restrictive and officials can now back off as they wait for the lagged impact from the 10 hikes making their way through economy.
There are four more FOMC members scheduled in 2023, the next meeting on monetary policy will be held on July 25 and July 26.
The Markets During the First Half of 2023 Were Reflective of the People that Trade Them
Financial markets reflect the collective actions and expectations of market participants. This includes rational analysis, irrational emotions, and at times less than rational analysis. The emotions and number crunching get their cue from a daily barrage of information including: profits, policy, panic, prices, politics, purchasing power, the president …and that’s just the Ps. So each day, as Channelchek prepares to deliver research, articles, and pertinent video content to subscriber’s inboxes, we plow through an abundance of information and hope to share what is either not being addressed or covered, or present front page news from the point of view of seasoned investors, not less experienced news writers.
Below are six articles, one from each month this year. Although I have favorites not included here, and these may not have been the most read or shared, they told a slightly expanded story than found on the mainstream take on the subject and are still relevant to some investors.
As a content provider to this popular investment research platform, my job is not to call the market; it is to present thoughts and knowledge to help investors make decisions on small and microcap stocks along with the overall universe of investment opportunities. The insights below from earlier this year are still quite current, and worth digesting.
On the very first business day of 2023, three regulators announced concerns over businesses involved in cryptocurrency citing the lack of oversight, lack of standards, and unknown risk. As the year progressed, the three federal agencies, which do not include work on oversight being done by the SEC or CFTC, are now working hard to regulate what banks can do involving crypto. The SEC for its part has been creating headaches for some of the larger crypto exchanges. Banks are having a particularly difficult time incorporating the asset in their business.
Investment content providers love Michael Burry. The reason is that readership goes through the roof whenever his name is mentioned. Still, if there is nothing to write about the subject, or if it is old news, the writer, blogger, or vlogger is doing investors a disservice.
We’re choosy about when to take one of Burry’s rare tweets and decipher them for readers. But, we always try to be among the first when his fund’s public holdings are reported each quarter on SEC form 13-F. But there are only few times during the year when there is actually worthwhile news. This is because Burry is usually tightlipped. Unless required by a regulator, the successful hedge fund manager is out of the public spotlight, presumably crunching numbers and rebuilding old guitars.
This article is good advice that can be used any time the Fed is trying to reel in inflation.
It was 1963 the last time the CFA Institute (Chartered Financial Analyst) made any changes to their prestigious designation. However, the investment world is changing, and the CFA Institute is responding in order to better serve those that benefit from the services of skilled analysts. In 2023 CFA candidates will have more choices, more study material available, and the ability to take credit for their rigorous studies beginning after passing Level I.
Some thoughts on why, eligibility, and the new focus are presented here along with how it should help keep the credential fresh and more useful.
It wasn’t too long ago that the Federal Reserve did not announce its intentions. If a Fed-watcher or market participant wanted to know for certain if the FOMC adjusted monetary policy, the best they could do is see if measures of money supply increased or decreased. Weeks later the FOMC Minutes would be released, and the markets would know for sure what the Fed did at the previous meeting.
When the Fed became more transparent, the market focus on money-supply disappeared. This has now reversed as the stimulative money that had been injected into the economy to prevent undue weakness during the pandemic is now being methodically removed via quantitative tightening (Q.T.). The renewed focus on M2 is to make sure the Fed sticks with its plan. Signs that it may not be impact the amount of money available to chase goods and services, this impacts inflation.
The Fed’s battle to drain the cash put into the system, and do it in a way that doesn’t crash banks, or the overall economy is perilous, is continuing and well worth understanding.
Economists and news writers have been negative about the economic outlook, scaring people with the word recession since before the year even began. And while there are some weaknesses, the stimulative money supply is still exceedingly high, jobs are more abundant than workers, and home sales have not reacted as expected when mortgage rates rise from 3% to 7%.
The often-repeated line that the downward slope of the yield curve is a time-tested indicator of an impending recession was the echo chamber talking point that probably didn’t apply to this economy because of a novel Fed policy.
From a textbook position, those saying a negative yield curve indicates a recession got the answer right if they were taking a college quiz. However, those that were saying this inverted yield curve indicates a recession may have flunked. And if you copied off the economist next to you, and they somehow missed that the Fed owned 33% of all U.S. Treasuries outstanding, and because of their policy of yield-curve-control, the yield curve was not market-driven, and therefore not a reliable indicator of anything. What we know is that when the Fed buys one out of every three bonds, it leaves a mark on the area of the curve that they are active.
With higher than expected GDP released last week, most have stopped talking about a recession in 2023. We put out several articles beginning in 2022 explaining why others may have this yield curve indicator wrong, this is addition is most recent.
I highly recommend reviewing this article if your summer backyard barbecues include conversations about economic strength (or weakness).
Small Cap stocks had been lagging behind larger companies. Historically they are more volatile, but investors expect to be compensated over time for the additional risk they take. Yet, over a longer than normal period, they still lagged. This seemed to have changed; during the first week in June there were some days that small company returns had a little more giddy-up than they had in recent months or years. On June 6th we published the above article.
Small cap stocks finished the month well ahead of the large caps and even mega-cap companies. This momentum has carried into the second half.
Let’s Start the Second Half of 2023 Together
If you are one of our free subscribers, thank you for trusting us as one of your news and research resources.
If you have not yet signed up, now is a great time to make sure you don’t miss any research, videos, special events, and market insights. Sign up here.
I hope you found these six articles compelling, and if you have not registered for no-cost insights to your inbox each day, here’s your chance to start the second half with a slightly different investment angle.
Looking Back at the Markets in June and Forward to July
Enthusiasm in the overall stock market was strong in June, the major indices were all up, and every S&P sector closed in positive territory. In fact, there was spectacular performance across market caps as Apple (AAPL) became the first company to reach a $3 trillion market cap, and noteworthy among small caps, Bitcoin mining company Bit Digital (BTBT) was up another 20% and a staggering 685% on the year during the last week in June. The across-the-board positive sentiment came during a month when the market was disappointed by the Federal Reserve’s continued hawkish bias.
Two dark clouds that the markets had hanging over them as they entered June were a possible U.S. default on debt and talk of a recession later this year. A higher debt ceiling law was signed on June 5, and a strong jobs report and higher-than-expected first-quarter GDP have for most, pushed most recession forecasts into 2024 or later. June’s performance may reflect a celebration and feelings of relief from both concerns.
Consumer confidence improved in June to its highest level since January 2022, reflecting a big jump in outlook and expectations. This surprise positive mood is reflected in stock market rotations experienced during June in both market-cap and market sectors.
Four broad stock market indices were positive in June. In order, the Russell 2000 Small Caps, Nasdaq 100 Large Caps, the S&P 500 Large Caps, and the Dow Jones Industrials. Small cap stocks are the big winner in June as investors went looking for value. The Russell 2000 rose 8.07%. The smaller stocks may now have more positive impetus that could carry over into July as a report released last week by Goldman Sachs estimates that based on their models, small cap stocks could rise 14% over the next 12 months.
While small cap stocks had their stars, the Nasdaq maintained a startling pace as big tech retained its appeal despite individual company market caps that have exceeded those of developed countries. The Nasdaq 100 was up 6.49% in June. The S&P 500 nearly matched Nasdaq with a 6.47% return. The Dow 30 Industrials, which have had a difficult few months, returned 4.56% to investors.
Of the 11 S&P market sectors (SPDRs), even the lowest performer had an impressive one-month return. The chart above reflects the three best-performing sectors and the three worst. The performance indicates that there was a sector rotation away from defensive stocks during June.
Consumer Discretionary had the best return at 11.96%. By definition, these are companies selling products that consumers can cut back on or more easily avoid. The top ten holdings include Starbucks (SBUX), Bookings Holdings (BKNG), and Tesla (TSLA).
What S&P calls the Industrial Select sector finally came to life in June. Its 9.57% return represents almost all of this sector’s performance for the first six months of 2023 (9.73% YTD). Examples of top stocks contained in this index are John Deere (D.E.), General Electric (G.E.), and Union Pacific (UNP).
The third was Materials Select which was negative on the year heading into June. The 9.23% return on the month more than erased the negative 7.67% performance heading into the month.
Each of the top three performers is typically sectors that investors delve into when their economic outlook is more positive.
The three worst-performing sectors also indicate the month was very positive. The Health Care sector was the best of the bottom three at 4.51%. While this did not bring the sector positive on the year, companies like Johnson & Johnson (JNJ), Abbott Labs (ABT), and United Health (UNH), had experienced strong years this decade with growth drivers that have since weakened some.
The second to weakest performer is Utilities Select. Utilities are still negative on the year despite a 2.13% increase in June. Companies like American Electric Power (AEP), Dominion Energy (D), and Consolidated Edison (E.D.) are surrounded by a lot of uncertainty as their costs are driven more than other industries by fuel prices. Additionally, investors in utilities tend to be dividend stock investors. Dividend stocks tend to underperform in a rising interest rate environment as they compete less favorably with bonds.
The worst-performing sector provides further evidence of a rotation during June. Consumer Staples was the second-worst-performing sector at the close of May. While it returned 1.72% in June, the sector, which includes Colgate Palmolive (CL), Walmart (WMT), and Philip Morris (PM), usually gains in popularity when consumer confidence is low, it loses popularity as consumer confidence is high, that’s when, as we saw in June, consumer discretionary stocks get attention.
Looking Forward
The job market is strong, inflation is tapering, and consumers are more confident. There are even signs that companies that have been waiting for an improved market to go public are considering now a good time for an IPO.
Bitcoin mining stocks and artificial intelligence are still be on fire. The crypto-mining stocks interest is tied to the price of Bitcoin – many of the stocks have actually outperformed the cryptocurrency. Artificial intelligence, as its potential becomes better understood, has inspired many to place bets that this will grow into a technology that is indispensable to many industries. Is the next Apple in this tech segment?
The rotation to small caps and sectors that perform better when the economy improves has a lot of momentum heading into July.
The next FOMC meeting is July 25-26; while market participants already expect further tightening, it has not deterred their positive view on the “risk-on” trade.
Take-Away
The market was jubilant in June. The signing into law of an increased debt ceiling helped kick off a change from the uncertain mood in May. It unleashed buyers that continued even after it was clear the Federal Reserve was not finished hiking interest rates.
The year 2023 now sits at the halfway point. And within a few months, we will be in a presidential election year. Stocks tend to do well in election years. While the Russia/Ukraine situation is still uncertain, especially in the energy sector, the markets seem to have already priced in negative scenarios and are marching upward confidently.
On the One Hand, the Russell 2000 Should Outperform, on the Other Hand…
A Goldman Sachs report released Wednesday, June 28 projects that the Russell 2000 should gain 14% over the next 12 months and could outperform the S&P 500 in the coming year. The economic headwinds that companies represented in the index would have to overcome were discussed in the report. Each should come as no surprise. The forecast is based on Goldman’s research using expected economic growth and current valuations.
Based on US economic growth and a model built on initial valuations, the small-cap index should gain 14% over the next 12 months, according to Goldman. This looks even more favorable compared to the reports projection that the S&P 500 is expected to climb 9% over the same period.
The research note said this would mark a position change as the S&P 500 has been outperforming the Russell 2000 Small Cap index.
Goldman outlined three near-term macro headwinds facing the Russell 2000 Index:
Rising Interest Rates
The index is more sensitive to monetary tightening because listed companies tend to have a higher debt burden than the S&P 500. As interest rates continue to rise, the cost of servicing debt could gradually put pressure on small caps, as about one-third of Russell 2000’s debt is floating rate.
This could become a complication through the remainder of the year, as the Federal Reserve has signaled the possibility of two more hikes. For its part, Goldman expects another hike in July, and predicts a cut for 2024.
Economic Development
Compared to the S&P 500, the Russell 2000 is more sensitive to US economic performance, wrote Goldman. Even if a recession has been avoided, small-cap stocks struggle to outperform in the later stages of the business cycle as investors turn to companies with larger balance sheets.
The note recognized another possible bump in the road suggesting it appears that the market has already priced in the GDP forecasts, and growth looks unlikely to pick up any further as long as the Fed continues to tighten to tame inflation.
Sector Composition
Goldman said the Russell 2000’s high exposure to cyclical stocks, regional banks, real estate and biotech makes it more vulnerable to slowing growth, rising rates and the re-emergence of financial stability fears.
This means there could be further cuts in earnings forecasts. The note recognized that while earnings revisions among S&P 500 companies have mostly been flat, Russell 2000 revisions are continuing.
Take Away
Goldman’s basic analysis shows the propensity for the small cap sector to begin to outperform in a big way. As is the case with market forecasters, the story starts out “on the one hand this could happen,” and then transitions with, “but on the other hand…”. It is standard to look out into the future and see where a sector could be headed, but also recognize where there may be trouble along the way.
The report did not lay out a scenario where the report may have underestimated where the Russell Small Cap index may be in 12 months, but with all the less-than-knowns surrounding this year, and an election year, it is safe to presume that the analyst could also have undershot where actual performance will be 12 months into the future.
This Week’s Economic Focus Will be on PCE Inflation
It’s the last trading week of the month, quarter, and first half of 2023. The Fed Chair is scheduled to speak on Wednesday at the ECB Forum on Central Bank Policy, and the Fed’s favored inflation gauge will be released on Friday. As we approach the 2023 halfway point, the S&P 500 is up 13.25% YTD. Historically, whenever the S&P 500 is up at least 10% YTD at the end of June, the index ends the year up on the year 82% of the time. However, it gained 7.7% on average for those years, which suggests some gains were given back in the average year.
Monday 6/26
• The ECB Forum on Central Banking 2023 is a three day event beginning Monday. The US Federal Reserve Chairman will take part in a panel discussion Wednesday.
Tuesday 6/27
• 8:30 PM ET, Durable Goods orders are forecasted to have fallen 1.0 percent in May after April’s 1.1 percent rise. Ex-transportation orders are seen unchanged with core capital goods orders, after jumping 1.3 percent in April, rising a further 0.6 percent.
• 10:00 AM ET, Consumer Confidence is expected to rebound slightly in June to 103.7 versus May’s 102.3 which was better than expected but still down 1.4 points from April. The index has sat at depressed levels for the past year.
• 1:00 PM ET, Money Supply, including the closely watched M2 will be released. M2 had stood at $20,673.1 Billion as of the last reporting. The act of the Fed tightening credit conditions, is typically orchestrated by reducing money in the system which can be expected to reduce money supply by its two most watched measures, M1 and M2.
Wednesday 6/28
• 9:30 AM ET, at 2:30 PM in Portugal a panel discussion on policy will be modersated by CNBCs Sara Eisen. The four member panel will include J. Powell, US Federal Reserve, A. Bailey, Bank of England, C. Lagarde, ECB, and K. Ueda, Bank of Japan.
• 10:30 AM ET, The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S., whether produced here or abroad. The level of inventories helps determine prices for petroleum products.
Thursday 6/29
• 8:30 AM ET, First quarter GDP third estimate is expected to show 1.4% growth. While this is not e a strong pace, it indicates the US is not currently in a recession.
• 8:30 AM ET, Jobless Claims for the week ending June 24 are expected to be 270,000 versus a second straight and elevated 264,000 in the two prior weeks and 262,000 the week before.
• 4:30 PM ET, Factors Affecting Reserve Balances, otherwise known as The Fed’s Balance Sheet or the H.4.1 report is a weekly report of a consolidated balance sheet for all 12 Reserve Banks that lists factors supplying reserves into the banking system and factors absorbing reserves from the system. The report is officially named Factors Affecting Reserve Balances, otherwise known as the “H.4.1” report.
Friday 6/30
• 8:30 AM ET, Personal Income and Outlays, including PCE Inflation, will be released as part of a data set. Income is expected to rise 0.4 percent in May, with consumption expenditures expected to increase by 0.2 percent. These would compare with April’s 0.4 percent gain for income and 0.8 percent jump for consumption. PCE Inflation readings for May are expected at monthly increases of 0.1 percent overall and 0.4 percent for the core (versus April’s respective increases of 0.4 percent for both) for annual rates of 3.8 and 4.7 percent (versus April’s 4.4 and 4.7 percent).
• 10:00 AM ET, Consumer Sentiment is expected to end the first half of 2023 at 63.9 for June, this would be up nearly 4 points from May.
What Else
The summer doldrums is a Wall Street term for reduced trading activity between Memorial Day and Labor Day. Many professional investors take time off from work during the summer; this means portfolios are in the hands of the second-string portfolio managers that are there to monitor and maintain but not take big positions or make big decisions. Volume is often reduced, which could cause exaggerated swings in prices.
Lifeway Foods, Inc. (LWAY), which has been recognized as one of Forbes’ Best Small Companies, is America’s leading supplier of the probiotic fermented beverages. Wherever you are on Monday, you can attend the virtual roadshow and better understand directly from management the many intricacies of the probiotic food business as it relates to Lifeway. Should you have a question for management, there will be an ample Q&A period for participants to get their questions answered.
