Mid-Week Market Minute 8.2.23

U.S. Debt Rating Downgraded; Earnings, Jobs Data This Week

Stocks were lower in early trading this week as investors evaluate second-quarter earnings alongside Fitch’s downgrade of the U.S. debt. On Tuesday night, rating agency Fitch Ratings lowered the long-term issuer default rating for the U.S. to AA+ from AAA based on the expectation of “expected fiscal deterioration” over the next few years. Bond markets have not reacted much to the news, with the yield on the 2-year and 10-year Treasury notes trading around 4.89% and 4.06% respectively. 

For the rest of the week, markets will shift their focus to earnings and labor reports, with the ADP employment report showing a better-than-expected 324,000 new jobs, above the consensus of 185,000. The Bureau of Labor will release the monthly jobs report on Friday, where there is an expectation for 200,000 new jobs for July. The unemployment rate is expected to remain at a near historical low rate of 3.6%, and average hourly earnings are expected to drop from 4.4% to 4.2% year-over-year. Wage inflation is closely watched by the Federal Reserve, so a drop in this metric will be important to show an ongoing reduction in inflation.

On the earnings front, second-quarter earnings season is more than halfway through with results coming in generally stronger than expected. Of the S&P 500 companies that have reported, about 82% have posted positive surprises (Factset). Stronger-than-expected earnings have added to positive investor sentiment, helping drive returns so far this year. 

Source: GSAM, CNBC, JPMorgan

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