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Market Recap – August 21, 2023

Keel Point

August 21, 2023

The S&P 500 closed 2% lower last week and is more than 5% lower since the end of July, even as next 12-months earnings per share expectations have continued to rise to $236 from $225 in March.  What happened? Higher interest rates.

  • Nearly 80% of S&P 500 companies reported earnings higher than analysts’ forecasts, the highest rate of beats since Q3 2021. Notably, retailers Target and Walmart closed out the week beating earnings expectation.
  • While top-line revenue growth was somewhat underwhelming, companies have been able to preserve and, in some cases, even fatten profit margins as the price pressures companies face from suppliers have fallen a lot faster than the prices they are charging customers.
  • While minutes of the Fed’s July meeting released last week offered a positive sense of abating inflation pressures, most Fed officials “continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” with inflation still above its 2% target and the job market still tight.
  • Fed members also indicated that everything is data dependent, so Fed Chair Powell’s comments this week at the annual Jackson Hole Fed conference will provide a new read on how the Fed sees the stronger economic growth and labor market data since its July meeting.
  • The impact on interest rates was almost immediate: the bond sell-off pushed the yield on the U.S. 10-year Treasury to 4.3%, the highest in 15 years, and average 30-year mortgage rates rose to 7.6%, the highest in more than 20 years. 

China’s efforts to invigorate domestic demand to be the engine of economic growth in place of exports is failing.  

  • China’s economy has stalled. There is no apparent government support for the economy, investor sentiment is declining, China’s government bond yields have fallen, and its currency has weakened. 
  • Prioritizing communist party principles over business growth has negatively affected company profitability, its stock market, exports, and its attractiveness for needed foreign investment.

 

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

 

 

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