Weekly Market Update for August 4, 2023

by Jim Ulland

Since 84% of the S&P 500 companies have now reported Q2 earnings, the remaining earnings will be from mid-sized and small companies. Expect higher volatility. 79% of the S&P 500 companies had earnings that exceeded expectations. This drove the Nasdaq and the S&P 500 to a fifth straight monthly gain. Smaller companies are unlikely to do as well.

Amazon and Apple earnings closed out the week. Amazon did very well, but Apple was more mixed. Amazon’s e-commerce revenue was up 9% over last year and its cloud business was up 12%. Amazon also is becoming an important advertising platform rivaling Meta (Facebook) and Alphabet (Google). Apple’s sales were more muted, up only 1%. Although consumers are still spending, they are trading down to less expensive products and delaying purchases of high-end items. Apple’s service and advertising revenues were bright spots. At the close, Amazon’s stock was up +8.3% for the day and Apple was down -4.8%.

The positive tone of earnings was offset by an unexpected downgrade of US government debt by Fitch, one of the three major credit rating agencies. The last time this happened, in August of 2011, the S&P 500 was down 5.5% for August (2011) and down 7% more that September. If inflation indicators continue to show declining prices, we think this will blunt the impact of the rating’s downgrade.

Job growth is an inflation indicator since it influences wage growth. Job growth for July was below expectations and the lowest since December 2020. Wage inflation is still an issue as evidenced by the UAW contract demand of 20% wage increases immediately followed by 5% increases each year for the next four. The next CPI reading is Thursday, August 10. This is followed by the Producer Price Index (wholesale/component prices) on Friday. These releases will have a market-moving impact.

The banking sector continues to heal, boosting preferred stock. A non-bank preferred from Telephone and Data Systems and its subsidiary US Cellular rocketed higher by 18.3% and 8.7%, respectively, as the controlling family explores putting the company up for sale.

During this downgrade-impacted week, the S&P 500 was down -2.27% and the Nasdaq -2.85%. Monday the S&P 500 was +0.15%. Tuesday -0.27%, Wednesday -1.38%, Thursday -0.25%, and Friday -0.53%. The 10-Yr Treasury was up +9 bps to 4.05%, whereas the 6-month Treasury closed the week at 5.47%.

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