Anil’s Analysis w/e Jun 30 2023

Powell's hawkish comments last week stalled a U.S. stock rally that had pushed the S&P 500 and Nasdaq to an over one-year high and the Dow to a six-month peak.

Despite recent market weakness, a growth stocks rally, an upbeat earnings season and hopes of the Fed ending its monetary tightening soon had set the main indexes for quarterly gains.

Investors appeared impressed by strong U.S. economic reports, which highlighted the resiliency of the U.S. economy and boosted the chances for a soft landing even though the reports were hawkish for Fed policy.

The US economy grew faster in the first quarter than previously forecast due to upward revisions to exports and consumer spending. Real gross domestic product in the March quarter rose at an annual rate of 2%, up from the prior growth estimate of 1.3%. The consensus was for a 1.4% gain.

The May new home sales report of +12.2% to a 1-1/4 year high of 763k was much stronger than market expectations for a small decline to 675k.

The May durable goods orders report of +1.7% m/m was stronger than expectations of -0.9%. Also, capital goods orders ex-defense and ex-aircraft, a proxy for corporate capital investment, rose +0.7% m/m, stronger than expectations of +0.1% m/m.

Claims for jobless benefits in the US fell to the lowest level in four weeks as the labour market remained tight, defying expectations for a slight increase in the number of people seeking unemployment benefits.

Personal consumption expenditures (PCE) advanced 0.1% in May lower than the expected 0.2% gain, decelerating from the downwardly revised pace of 0.6% in April. The annual headline PCE price index increased 3.8% last month, marking a deceleration from 4.3% in April. The Fed's preferred core inflation measure, which excludes food and energy, cooled to 4.6% from April's 4.7% rise.

The Fed released the results of its annual stress test, showing that all 23 banks tested remained above their minimum capital requirements during the hypothetical recession, despite total projected losses of $541 billion. In its statement the Fed stated the large banks are well positioned to weather a severe recession and continue to lend to households and businesses even during a severe recession.

In the 'NEWS' a Wall Street Journal report that Washington is considering new restrictions on exports of artificial intelligence chips to China did not help market sentiment, and one of our favoured stock, Nvidia (NVDA) felt the immediate pain to start but then spent the week to recover.

After last weeks blip all three major indexes posted a strong recovery to return to their recent trend up. Nasdaq has been the start performer posting 10 green weeks out of 13 this quarter and moving up over 12% in the process. S&P in comparison moved just over 8% whereas the Dow was further behind moving up nearly 3.5%. Nasdaq and S&P have also posted their highest weekly close since the first week of APR22. DoW however has arrived at a cluster of Res of wCAT and RN35k. S&P and Nasdaq are now on a four month Bull run.

CABLE found and reversed from its m50MA/WVI Res. The pair did have a strong month, the second best this year behind MAR.

For Sector ETF's we had a clean sweep of Green led by Real Estate (XLRE) and closely followed by Energy (XLE) and Materials (XLB). On the Monthly we also had a clean sweep of green, the first since we had b2b Green months in OCT/NOV22. Surprisingly despite the move up in Nasdaq, neither Technology (XLK) nor Communications (XLC) were the outperformers, that tag when to Discretionary (XLY) which posted a double digit growth of over 12%. Industrial (XLI) was the only other Sector to achieve a double digit growth in June.

From a Sector watch perspective, Finance (XLF) continues its move within the Improving quadrant, though worryingly it is angling away from the Leading quadrant. Communications (XLC) having left the Leading quadrant 2 weeks ago, continues its move down into the Weakening quadrant - which to me is very surprising given it has been on a four month Bull run and posted 10 green weeks from 13 this quarter to move up nearly 12%? - maybe we will get an explanation from Javid Shaik at this weekend webinar😜

Next week in addition to the 4JUL holiday on Tuesday, the markets will close early on Monday at 1pm ET. Despite this we also have another busy week for Econ news that will start with Manufacturing and Services PMI data, FOMC minutes and end with the NFP on Friday.

Have a great weekend all.

Anil Dala

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