Stocks Rally; Inflation, Employment Reports This Week
Stocks around the globe staged an impressive rally through the first half of this week as the recent upward pressure on interest rates subsided. As of mid-week, the S&P 500 (total return) was higher by nearly 2.3%, leaving the benchmark U.S. index just 4% below all-time highs. All sectors traded higher this week, led by communication services, technology, and consumer discretionary. Overseas, international developed stocks (MSCI EAFE) were higher by about 2.5%, while emerging market stocks (MSCI EM) traded about 2.4% higher.
In bonds, longer duration (more interest-rate sensitive) bonds rallied on the heels of lower interest rates. After finishing last week around 4.25%, the yield on the 10-year Treasury note traded around 4.10% as of Wednesday. This translated into positive returns of about 0.85% for the Bloomberg Aggregate Bond Index. In tax-exempt bonds, the municipal index lagged taxable bonds but was still higher by about 0.20% mid-week.
On Wednesday morning, the second estimate of Q2 real GDP came in lower than expected at 2.1% on an annualized basis against expectations for a 2.4% increase. The downward revision was a result of more moderate business investment that overshadowed the upward revision to household spending, the backbone of the economy. Still, the Atlanta Fed’s GDP Now model continues to project significant economic growth in the third quarter, with current estimates of around 5.9%.
Looking ahead, market participants will be watching a couple of key data reports for the remainder of this week. On Thursday, the Fed’s preferred measure of inflation, the core PCE Price Index, is expected to rise by 4.2% on an annualized basis, up from 4.1% in June. In addition, the monthly employment report comes Friday with a consensus of 170,000 new jobs and the unemployment rate expected to remain at 3.5%.
Source: GSAM, CNBC, JPMorgan
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