Market Recap 6/26/2023 | StreetFins®

Rebound Time

The U.S. stock market rebounded strongly after a previous week of losses, driven by positive economic data. The S&P 500, NASDAQ, and Dow Jones all experienced gains of over 2%. This marked the ninth positive week out of the past ten for the NASDAQ, indicating its resilience. Moreover, June proved to be a robust month for the S&P 500 and NASDAQ, both recording nearly 7% gains and marking their fourth consecutive positive month. The Dow also climbed almost 5%, achieving its best performance since November 2022 and its strongest month since October. The equity sectors in the U.S. market displayed a top-heavy trend during the first half of 2023. Information technology dominated, contributing nearly 65% of the S&P 500’s year-to-date net return. In comparison, consumer discretionary and communication services sectors accounted for around 20% and 18% of the market’s return, respectively. Other sectors had relatively modest positive or negative performances.

Inflation moderated during the period, as indicated by the U.S. Federal Reserve’s preferred gauge for tracking consumer prices. In May, the Personal Consumption Expenditures Price Index showed a slower monthly increase, the lowest in two years. The index rose at a 3.8% annual rate, down from the revised figure of 4.3% in April. Core inflation, which excludes volatile food and energy prices, also decreased slightly from 4.7% in April to 4.6% in May. The U.S. economy’s growth in the first quarter of 2023 was revised upwards, revealing a stronger result than previously estimated. Gross domestic product (GDP) increased at a 2.0% annualized pace, up from the initial estimate of 1.3%. The improvement was primarily driven by stronger consumer spending and exports.

Yields on U.S. government bonds experienced an uptick after a relatively quiet period in June. The 10-year U.S. Treasury bond yield closed at 3.81%, rising from 3.74% at the end of the previous week. In early April, the yield had been as low as 3.29%, highlighting the increase in bond yields. Market volatility, as measured by the Cboe Volatility Index, rose slightly after five consecutive weeks of decline. The index closed at 13.6, slightly above its pre-pandemic level, but still down 32% from a recent high in May. This indicates a relatively calm market environment. Looking ahead, the upcoming monthly U.S. labor market update will provide insights into job growth for June. In May, the economy generated 339,000 new jobs, surpassing economists’ expectations and an increase from the 294,000 jobs added in April. However, the unemployment rate rose to 3.7% in May. Market participants will closely watch this report to gauge the labor market’s strength.

End of Affirmative Action

The end of affirmative action policies could have significant implications for the job market and the overall economy. Affirmative action has been a longstanding practice aimed at addressing historical disadvantages and promoting diversity and equal opportunities in employment and education. If these policies were to be eliminated, it could lead to substantial changes in the workforce composition and potentially impact economic outcomes.

One of the potential effects of ending affirmative action is a reduction in workforce diversity. Affirmative action has played a crucial role in increasing the representation of historically marginalized groups, such as racial and ethnic minorities, women, and individuals with disabilities, in various industries and professions. By removing these policies, the job market may become less inclusive, which could limit the opportunities available to underrepresented groups and lead to a less diverse workforce.

A less diverse workforce can have economic consequences. Numerous studies have shown that diverse teams and organizations tend to perform better, innovate more, and achieve higher levels of productivity. The different perspectives, backgrounds, and experiences that come with diversity can lead to more creative problem-solving, better decision-making, and a broader range of ideas and solutions. Without affirmative action, the lack of diversity in the job market could hinder innovation and economic growth.

Furthermore, ending affirmative action may perpetuate existing inequalities and hinder social mobility. Affirmative action seeks to address systemic barriers and provide equal opportunities for historically disadvantaged groups. By eliminating these policies, individuals from marginalized backgrounds may face increased barriers to accessing quality education and employment opportunities. This could result in a perpetuation of socioeconomic disparities, exacerbating income inequality and hindering upward mobility for those who have historically faced discrimination and limited opportunities.

In addition to the impact on workforce diversity and social equity, the removal of affirmative action policies may also have legal and social implications. The debate surrounding affirmative action has been contentious, with proponents arguing for its necessity in addressing historic inequities, while opponents claim it can lead to reverse discrimination. The elimination of these policies could potentially result in increased legal challenges and social tensions, as different groups vie for access to opportunities and equal treatment in the job market.

It is important to note that the impact of ending affirmative action would not be uniform across all industries and regions. Some sectors and areas may be more affected than others, depending on the existing diversity landscape and the level of institutional support for diversity and inclusion. Additionally, alternative strategies and initiatives could emerge to promote diversity and equal opportunities, mitigating some of the potential negative effects.

In conclusion, the elimination of affirmative action policies could have far-reaching consequences for the job market and the economy. A reduction in workforce diversity, hindered innovation, perpetuation of inequalities, and potential legal and social ramifications are among the potential outcomes. It is crucial to carefully consider the implications and seek alternative strategies that promote inclusivity, equal opportunities, and social progress, ensuring a fair and equitable job market and a thriving economy for all.

Inflation Outlook Mixed

U.S. consumer spending showed signs of weakening in May, as households reduced purchases of durable goods like light trucks and faced higher borrowing costs. While inflation increased at its slowest pace in over two years, economists believe that underlying price pressures remain strong enough to keep the Federal Reserve on track to raise interest rates in July. The slowdown in consumer spending, along with downward revisions to April’s data, suggests that the economy may have lost some momentum in the second quarter. Despite positive indicators in the labor and housing markets, the stagnation in real consumer spending implies a potential slowdown in economic growth. However, job gains, housing starts, durable goods orders, and a narrowing goods trade deficit provide some optimism for continued economic expansion.

Personal income and wages rose, supporting consumer spending, while slowing inflation boosted consumers’ purchasing power. However, concerns remain, particularly for lower-income households who may have depleted their savings accumulated during the COVID-19 pandemic. The recent Supreme Court decision blocking President Biden’s plan to cancel student loan debt adds additional financial pressure, as lower-income consumers may need to cut back on discretionary spending. With inflation subsiding in May, the Federal Reserve will continue to monitor underlying price pressures, with expectations of at least one more rate hike to address stubborn inflation.

Summary:

Rebound Time: U.S. stock market bounces back with strong gains after a week of losses, driven by positive economic data. S&P 500, NASDAQ, and Dow Jones all experience gains of over 2%, marking a resilient performance for the NASDAQ and a strong month for the S&P 500 and NASDAQ overall.

End of Affirmative Action: The potential end of affirmative action policies raises concerns about reduced workforce diversity, hindered innovation, perpetuation of inequalities, and potential legal and social implications. The impact would vary across industries and regions, but careful consideration is needed to ensure a fair job market and a thriving economy for all.

Inflation Outlook Mixed: U.S. consumer spending weakens in May, signaling a potential slowdown in economic growth. Slowing inflation provides some relief for consumers’ purchasing power, but concerns remain for lower-income households and the need for continued monitoring of underlying price pressures by the Federal Reserve.