Weekly market update - 25th of July 2023
Written and accurate as at: Jul 25, 2023 Current Stats & Facts
Over the past week, global equity and bond markets remained resilient in the face of incoming US quarterly earnings reports and amidst anticipations of meetings by the Federal Reserve, European Central Bank, and Bank of Japan. The S&P 600 demonstrated a gain of 0.7%, whereas the S&P/ASX 300 recorded a marginal uptick of 0.13%.
A noticeable shift from tech stocks to banks in the US indicated a rotational trend within the financial markets. This rotation could be attributed to recent apprehensions regarding the tech industry, due to their significant recent growth, in tandem with optimistic banking outcomes that surpassed the market's apprehensions.
Notably, several key factors were driving the markets in 2023. Positive inflation figures, economic resilience, and advancements in artificial intelligence played substantial roles in market dynamics. While the markets appeared to enter a consolidation phase, there was little to no indication of a significant correction on the horizon.
As we now see, there is a notable improvement in market breadth, an encouraging sign, along with an economy displaying no substantial signs of deterioration. With Australia's employment data echoing the theme of domestic economic resilience, it seems challenging to anticipate a significant drop in inflation under the prevailing circumstances.
At the onset of 2023, six market-influencing issues were identified. Mid-year, it's time to reassess their impact on the financial landscape. The key elements have indeed evolved, and while definitive developments are scarce, the possibility of a 'soft landing' miracle is gradually becoming a reality - a scenario few would have predicted six months prior.
Added to these issues are the implications of artificial intelligence on long-term earnings, the impact of the US-dollar index (DXY), and questions surrounding whether this signifies the beginning of a substantial shift or simply a consolidation period.
Inflation has proven more persistent than expected, though recent data suggests it may start to decline. Wages and labour market trends are still contentious issues. And while commodities and input prices have decreased, helping to reduce inflationary pressures, service inflation remains connected to wage growth and productivity.
The US and other developed markets have surpassed most expectations regarding global economic performance, defying fears of a possible recession. Furthermore, the S&P 500 and NASDAQ have achieved appreciable gains, signalling less pessimism and less cushion in an economic downturn.
China, however, still needs to meet expectations, with a slowdown in Q1 gains and persistently cautious consumers. Australia's economy has held steady, demonstrating strength amid stubborn inflation and rising wage growth.
As central bank policies come into focus this week, the Fed, ECB, and BOJ are poised to make crucial decisions that will undoubtedly significantly impact global financial conditions. In conclusion, as the 2023 earnings season progresses, the low stock correlations and weak revisions might signal an impending consolidation or pull-back.
The financial world continues to watch these dynamics unfold with cautious optimism, waiting to see whether the year will deliver a soft landing or if the laws of economics will eventually catch up.