Data offers varied messages on U.S. economy
United States
Stocks recorded mixed returns for the second consecutive week, with small-cap and value shares continuing to outpace the large-cap growth stocks that have led the market over much of the year. Indeed, at the close of trading on Thursday, the technology-heavy Nasdaq Composite 100 Index was lagging the broader S&P 500 Index and barely outperforming the small-cap Russell 2000 Index for the year to date, before large-cap growth shares rebounded to close the week. The week was also notable for the S&P 500 Index selling off on Wednesday by more than 2% for the first time since February 2023, while the Nasdaq suffered its worst loss since October 2022.
- A 12.33% decline in Tesla and a 5.03% decline in Class C shares of Google parent Alphabet following earnings reports contributed heavily to Wednesday’s declines.
- As of the end of the week, analysts polled by FactSet were predicting that overall earnings for the S&P 500 had risen by 9.8% compared with the same quarter a year ago—up slightly from the 9.7% estimated the previous week.
Market Indexes Changes
| Index | Friday's Close | Week's Change | % Change YTD |
|---|---|---|---|
| DJIA | 40,589.34 | 301.81 | 7.69% |
| S&P 500 | 5,459.10 | -45.90 | 14.45% |
| Nasdaq Composite | 17,357.88 | -369.06 | 15.63% |
| S&P MidCap 400 | 3,074.96 | 59.66 | 10.55% |
| Russell 2000 | 2,260.07 | 75.72 | 11.49% |
Housing Market Slump Continues, but Business Investment Picks Up
- Only 617,000 new homes were sold in June, well below expectations of around 640,000 and the lowest monthly number since last November. The average selling price also fell roughly 4% from the year before.
- S&P Global reported that its gauge of manufacturing activity unexpectedly fell back into contraction territory, to 49.5 for the first time since December.
- Durable goods orders, excluding those for defense and aircraft, rose 1.0% in June, the most since March 2022.
- Weekly and continuing jobless claims fell more than expected, while real consumer spending rose at an annualized pace of 2.3% in the second quarter.
- The economy grew at an annualized rate of 2.8% in the second quarter, well above expectations and double the first-quarter pace.
Investors Appear Reassured by Fed’s Preferred Inflation Gauge
- The core personal consumption expenditures (PCE) price index rose a tick more than expected (0.2%) in June but stayed steady at an annual rate of 2.6%.
- Futures markets tracked by CME FedWatch ended the week pricing in a zero chance of the federal funds rate staying at its current level by the September meeting.
- The yield on the benchmark 10-year Treasury note ended the week slightly lower.
- Tax-exempt municipal bond yields were little changed, and issuance in the investment-grade corporate bond market was slightly above expectations.
- The high yield bond market was little changed with below-average volumes throughout the week.
Europe
In local currency terms, the pan-European STOXX Europe 600 Index ended 0.55% higher, largely thanks to a rally on Friday as investors focused on a better day of quarterly earnings reports. Among major Continental indexes:
- Germany’s DAX gained 1.35%
- France’s CAC 40 Index lost 0.22%
- Italy’s FTSE MIB gave back 1.27%
- The UK’s FTSE 100 Index rose 1.59%
Tech, Luxury Goods Earnings in Focus
- European equity markets sagged midweek as earnings in the technology and luxury goods sectors weighed on returns.
- Heading into Friday’s official opening ceremonies for the summer Olympics in Paris, French President Emmanuel Macron called for a political truce during the games.
- Travel disruptions caused by Friday’s arson attacks on France’s high-speed rail infrastructure marred the opening to some degree but didn’t appear to affect the CAC 40 Index for the day.
Eurozone Sovereign Bond Yields Decrease
- Core eurozone government bond yields continued to decrease as weaker-than-expected readings from the region’s flash purchasing managers indexes boosted expectations for monetary easing.
- Markets priced in 50 basis points of interest rate cuts from the European Central Bank (ECB) over the remainder of 2024.
- French and Italian government bond yields widened relative to Germany as political developments continued to fuel fiscal concerns.
UK Chancellor to Provide Results of Public Finances Audit
- UK Chancellor of the Exchequer Rachel Reeves said that she would announce the findings of an audit of public finances at the end of July.
- The Bank of England (BoE) revealed a new facility to provide funding for nonbank financial institutions designed to avoid the government bond market volatility experienced two years ago.
- UK economic data have been mixed, leading to speculation about whether or not the BoE will follow the ECB and make its first interest rate cut at its August policy meeting.
