Wall Street proved resilient during the second quarter of the year, despite rising inflation, two interest rate hikes, and concerns about the debt ceiling. The economy remained relatively strong, despite predictions that it may be headed toward a recession. The second quarter saw information technology, communication services, and consumer discretionary account for most of the market gains. Energy, utilities, health care, financials, and consumer staples slid lower. The market’s positive performance during the second quarter was buoyed by strength in the labor market, economic data that may be showing inflation is beginning to wane, and a better-than-expected first-quarter gross domestic product.

Government bond yields rose in the second quarter, with investors eyeing the relative strength of the economy as reason to remain bullish on stocks. Each of the benchmark indexes listed here climbed higher in the second quarter, with the Nasdaq enjoying its third-best first half on record, a far cry from last year at this time, when the tech-heavy index was going through its second-worst six-month stretch. The S&P 500 also enjoyed notable growth in the second quarter. The dollar inched higher while gold prices retreated in the second quarter. Notwithstanding a roughly 4.0% increase in June, crude oil prices declined for the fourth consecutive quarter, marking the longest losing streak since 1988. While indications seem to point to a more bullish outlook, crude oil supply continued to outpace demand, muting prices. OPEC+ cuts were offset by production increases from other sources, including the United States. In addition, China’s demand has been weaker than anticipated, with manufacturing slow to expand. Prices at the pump rose in the second quarter. The June 26 retail price for regular gasoline was $3.571 per gallon, $0.15 above the March price of $3.421 per gallon. However, gas prices are down $1.301 over the last 12 months.

April began the quarter with stocks posting modest gains from the previous month. The large caps of the Dow (2.5%) and the S&P 500 (1.5%) were bolstered by a rally over the last two days of the month. Small caps declined further with the Russell 2000 falling 1.9%, while remaining marginally ahead of its 2022 year-end value. Among the market sectors in April, industrials underperformed, while communication services fared the best. Data in April showed some signs of economic weakening. Job growth in April (236,000), was well below the monthly average for the year, while the number of workers receiving unemployment insurance reached its highest level since November 2021. Housing data was soft, with the number of residential building permits and housing starts sagging from the previous month. Existing home sales dropped, while the median existing-homes sales price was 0.9% less than a year ago. Financials took a hit after another bank fell into Federal Deposit Insurance Corporation receivership. Despite some economic downturns, other data supported ongoing economic strength and bolstered investor sentiment. First-quarter corporate earnings were somewhat better than expected. The Consumer Price Index inched up only 0.1%, bringing the year-over-year increase to 5.0%, the lowest annual pace since May 2021.

Stocks were mixed in May, with information technology and communication services pushing the Nasdaq up nearly 6.0%, while the Dow lost 3.5%. The S&P 500 inched up 0.3%, but the small caps of the Russell 2000 fell 1.1%. Like the previous month, relatively strong corporate earnings reports and encouraging inflation data helped keep investors in the market. Bond prices slid lower, pushing yields higher, with 10-year Treasuries climbing 18.0 basis points in May. Stocks began the month on a downturn after the Federal Reserve hiked interest rate 25.0 basis points, while giving no clear indication as to whether or when more rate hikes were coming. For much of the month, investors focused on the debt ceiling negotiations between President Biden and House Speaker McCarthy. Mega-cap technology and artificial intelligence stocks dominated the market for much of May. Inflation remained elevated, with the personal consumption expenditures price (PCE) index, a preferred inflation indicator of the Federal Reserve, rising 4.3% for the year, while consumer prices excluding food and energy rose 4.7%.

June was a strong month for stocks, with each of the benchmark indexes listed here posting gains of between 4.6% and 8.0%. Inflationary pressures showed signs of cooling, with the 12-month PCE price index coming in at 3.8%. The Consumer Price Index rose 4.0% for the year, the smallest 12-month increase since the comparable period ended March 2021. The Federal Reserve elected not to increase interest rates in June, opting, instead, to step back and assess additional information and its implications for monetary policy. Gross domestic product advanced at a stronger-than-expected 2.0% for the first quarter, showing resilience in the economy. Despite the collapse of several major U.S. banks, the Federal Reserve indicated that the largest domestic banks are sufficiently positioned to continue lending to households and businesses even during a severe recession. The labor market picked up the pace, adding nearly 340,000 new jobs, in line with the average monthly gain over the past 12 months. Industrial production declined minimally, following two consecutive monthly increases. While manufacturing slowed, business activity in the services sector expanded at the fastest rate since April 2022. Long-term bond yields increased in June from May, as bond prices dipped lower.

Stock Market Indexes

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Latest Economic Reports

• Employment: Employment rose by 209,000 in June from May compared with an average monthly gain of 278,000 so far this year. In June, employment trended upward in government, health care, social assistance, and construction. The unemployment rate edged down 0.1 percentage point to 3.6%. In June, the number of unemployed persons fell by 140,000 to 5.9 million. The employment-population ratio, at 60.3%, and the labor force participation rate, at 62.6%, were unchanged in June from the previous month. Both measures have shown little net change since early 2022. In June, average hourly earnings increased by $0.12 to $33.58. Over the 12 months ended in June, average hourly earnings rose by 4.4%. The average workweek in June, at 34.4 hours, edged up 0.1 hour from May.
• There were 221,000 initial claims for unemployment insurance for the week ended July 22, 2023. The total number of workers receiving unemployment insurance was 1,690,000. By comparison, over the same period last year, there were 211,000 initial claims for unemployment insurance, and the total number of claims paid was 1,317,000.
• FOMC/interest rates: The Federal Open Market Committee raised the federal funds target range rate by 25.0 basis points in July, bringing the target range for the federal funds rate to its highest level since 2001. The Committee noted that inflation remained elevated, while economic activity expanded at a moderate pace. Job gains have been robust, and the unemployment rate remained low. The FOMC statement indicated that the U.S. banking system was sound and resilient. Overall, the FOMC will base its decisions on available data and “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
• GDP/budget: Economic growth remained steady in the second quarter, as gross domestic product increased 2.4%, compared with a 2.0% increase in the first quarter. The acceleration in second-quarter GDP compared to the previous quarter primarily reflected increases in private inventory investment and nonresidential fixed investment. Consumer spending, as measured by personal consumption expenditures, rose 1.6% in the second quarter compared to a 4.2% increase in the first quarter. Consumer spending on long-lasting durable goods inched up 0.4% in the second quarter after advancing 16.3% in the prior quarter. Spending on services rose 2.1% in the second quarter (3.2% in the first quarter). Nonresidential fixed investment increased 7.7% after rising 0.6% in the first quarter. Residential fixed investment fell 4.2% in the second quarter, little changed from the first quarter (-4.0%). Exports decreased 10.8% in the second quarter, following an increase of 7.8% in the first quarter. Imports, which are a negative in the calculation of GDP, decreased 7.8% in the second quarter after advancing 2.0% in the previous quarter. Consumer prices increased 2.6% in the second quarter compared to a 4.1% advance in the first quarter. Excluding food and energy, consumer prices advanced 4.8% in the second quarter (4.9% in the first quarter).
• The federal budget had a $227.8 billion deficit in June, well above the year-earlier deficit of $88.8 billion. The deficit for the first nine months of fiscal year 2023 was $1.393 trillion compared to $515.1 billion through the comparable period of the previous fiscal year. In June, government receipts totaled $418.3 billion for the month and $3.413 trillion for the current fiscal year. Government outlays were $646.1 billion in June and $4.805 trillion through the first nine months of fiscal year 2023. By comparison, receipts in June 2022 were $460.8 billion and $3.835 trillion through the first nine months of the previous fiscal year. Expenditures were $549.6 billion in June 2022 and $4.350 trillion through the comparable period in FY22.
• Inflation/consumer spending: According to the latest Personal Income and Outlays report, consumer spending increased 0.5% in June and 9.1% since June 2022. Personal income and disposable personal income rose 0.3% in June, following a 0.5% increase in May. Consumer prices rose 0.2% in June, as did prices less food and energy. However, prices have risen 3.0% since June 2022. This is the lowest 12-month increase in consumer prices since the year ended in March 2021.
• The Consumer Price Index rose 0.2% in June after increasing 0.1% in May. Over the 12 months ended in June, the CPI advanced 3.0%, down from 4.0% for the year ended in May. This is the lowest 12-month rate since March 2021. Excluding food and energy prices, the CPI rose 0.2% in June and 4.8% over the last 12 months, marking the lowest 12-month rate since October 2021. Prices for shelter, which rose 0.4%, contributed more than 70.0% of the overall increase in the June CPI. Also advancing in June were prices for food (0.2%), energy (0.6%), and apparel (0.3%). For the 12 months ended in June, food prices have increased 3.0%, while energy prices have fallen 16.7%.
• Prices that producers received for goods and services inched up 0.1% in June, following a 0.3% decline in the previous month. Producer prices increased 0.1% for the 12 months ended in June, the lowest 12-month rate since August 2020. Driving the overall increase in producer prices was a 0.2% jump in prices for services. Goods prices were flat. Producer prices excluding food and energy rose 0.1% in June and 2.4% for the year. Energy prices rose 0.7% in June but fell 23.9% since June 2022. Food prices dipped 0.1% in June but were up 0.2% for the 12 months ended in June.
• Housing: Sales of existing homes decreased 3.3% in June. Since June 2022, existing-home sales dropped 18.9%. According to the report from the National Association of Realtors®, sales have fallen 23.0% during the first half of the year. In June, total existing-home inventory sat at a 3.1-month supply at the current sales pace. The dearth of available homes for sale has negatively impacted transactions. The median existing-home price was $410,200 in June, the second-highest price of all time and down only 0.9% from the record-high of $413,800 in June 2022. Sales of existing single-family homes dropped 3.4% in June and 18.8% from June 2022. The median existing single-family home price was $416,000 in June, up from the May price of $401,500 but well below the June 2022 price of $420,900.
• New single-family home sales declined in June, falling 2.5%, marking the first monthly decrease since February. Despite the June decrease, sales were up 23.8% from a year earlier. The median sales price of new single-family houses sold in June was $415,400 ($417,300 in May). The June average sales price was $494,700 ($488,700 in May). The inventory of new single-family homes for sale in June increased to 7.4 months, up from 7.2 months in May.
• Manufacturing: Industrial production declined 0.5% in June after falling 0.2% in May. Manufacturing decreased 0.3% in June, driven lower, in part, by a 3.0% decrease in motor vehicles and parts, and a 1.6% decline in petroleum. In June, mining slid 0.2%, while utilities dropped 2.6%. Total industrial production in June was 0.4% below its year-earlier level. Most major market groups posted declines in June. Consumer durables fell 2.7%, led by decreases in appliances, furniture, and carpeting (-3.8%) and automotive products (-3.6%). The decrease of 0.9% for consumer nondurables reflected declines in clothing (-2.1%), energy (-1.8%), and food and tobacco (-1.3%).
• New orders for durable goods rose for the fourth straight month after increasing 4.7% in June. Excluding transportation, new orders increased 0.6%. Excluding defense, new orders increased 6.2%. Transportation equipment, also up four consecutive months, led the increase, climbing 12.1%.
• Imports and exports: June saw both import and export prices decrease. Import prices fell 0.2%, following a 0.4% decline in May. The June drop in import prices was the fifth decrease out of the first six months of 2023. Imports declined 6.1% over the past year, the largest 12-month decrease since the year ended May 2020. Import fuel prices rose 0.8% in June, offset by a 0.4% decline in nonfuel import prices. Export prices fell 0.9% in June after declining 1.9% in the previous month. Lower prices for nonagricultural exports and agricultural exports in June contributed to the overall decrease. Export prices fell 12.0% from June 2022 to June 2023, the largest over-the-year decline since the series was first published in September 1984.
• The international trade in goods deficit fell $4.0 billion, or 4.4%, in June. Exports of goods increased 0.2% from May, while imports of goods decreased 1.4%.
• The latest information on international trade in goods and services, released July 6, was for May and revealed that the goods and services trade deficit fell $5.5 billion, or 7.3%, from April. Exports for May were $2.4 billion, or 0.8%, below April exports. Imports were $7.5 billion, or 2.3%, less than April imports. Year to date, the goods and services deficit decreased $101.7 billion, or 22.8%, from the same period in 2022. Exports increased $48.0 billion, or 3.9%. Imports decreased $53.7 billion, or 3.2%.
• International markets: Inflation continued to be the dominant topic last month. In the United Kingdom, although consumer prices inched up 0.1% in June, the 12-month rate remained elevated at 7.9%, still about 6.0 percentage points higher than the Bank of England’s target. In France, consumer prices rose 0.2% for the month, while falling from an annual rate of 5.1% to 4.5%. The 12-month rate of inflation in the Eurozone dipped from 6.1% to 5.5%, while Germany saw consumer prices remain at 6.4% for the 12 months ended in June. China, on the other hand, has seen consumer prices fall, which has depleted corporate profits and could lead to a reduction in the workforce. The prospects of Chinese deflation could benefit global trade partners, such as the United States, by easing product prices. However, China’s slowing economy could also reduce that country’s demand for materials and consumer goods, which would negatively impact world trade. For July, the STOXX Europe 600 Index increased 2.3%; the United Kingdom’s FTSE rose 2.3%; Japan’s Nikkei 225 Index fell 1.7%; and China’s Shanghai Composite Index ticked up 1.5%.
• Consumer confidence: Consumer confidence sits at the highest level since July 2021. The Conference Board Consumer Confidence Index® increased in July to 117.0, up from 110.1 in June. The July increase marked the second straight monthly gain in consumer confidence. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, improved to 160.0 in July, up from 155.3 in the previous month. The Expectations Index, based on consumers’ short-term outlook for income, business, and labor market conditions, rose to 88.3 in July from 80.0 in June. Importantly, according to the Conference Board’s report, the Expectations Index climbed above 80.0, the level associated with a recession. Despite rising interest rates, consumers are more upbeat, likely reflecting falling inflation and a tight labor market.

Eye on the Month Ahead

Investors will focus on corporate earnings and the labor market in August. The Federal Open Market Committee does not meet in August, so there will be no change to the Federal Funds target rate. Manufacturing, which has slowed during the summer months, looks to pick up steam in August.
Market summary provided by Broadridge Advisor (July 31, 2023).

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI, Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 largest, publicly traded companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indexes listed are unmanaged and are not available for direct investment.