2023 | May 30

The Market

Stocks Mixed

U.S. stock indexes started the week on a negative note but shifted in a positive direction on Thursday and Friday. Results varied widely, with the NASDAQ posting a 2.5% total return, the S&P 500 adding 0.3%, and the Dow slipping 1.0%.

Strong results from selected information technology stocks lifted the NASDAQ to its fifth consecutive week of outperformance relative to the S&P 500 and the Dow. Over that five-week period, the NASDAQ gained 7.5%, the S&P 500 added 1.7%, and the Dow was down 2.1%.

With earnings season now behind, U.S. financial markets took many of their cues from the status of talks to lift the federal government’s debt ceiling and avoid a potential debt default as soon as early June. The sluggish pace of negotiations between Congress and the White House weighed on markets early in the week, but subsequent reports of progress shifted the momentum somewhat.

The yield of the 10-year U.S. Treasury bond rose for the second week in a row, climbing to the highest level in two and a half months. The 10-year bond closed around 3.80% on Friday—up from 3.46% a couple weeks earlier, yet well below a recent peak of 4.07% on March 2.

Companies in the S&P 500 recorded an average earnings decline of 2.2% versus the same quarter a year earlier, according to FactSet data from the recently concluded earnings season. That result marked the second consecutive quarterly earnings decline. Consumer discretionary was the strongest among all 11 sectors, with earnings growth of 55%.

Minutes released on Wednesday from the most recent policy meeting of the U.S. Federal Reserve showed that officials were divided as to whether another interest-rate increase will be needed when they meet again on June 13–14. At their early May meeting, some officials said they expected that an economic slowdown would remove the need for another rate hike, while others suggested another increase is likely.

The U.S. Federal Reserve’s preferred gauge for tracking inflation showed that consumer prices rose at a slightly faster pace in April than in March, reversing a recent trend of inflation moderation. The Personal Consumption Expenditures Price Index rose at a 4.4% annual rate in April, up from 4.2% in March. Excluding volatile food and energy prices, core inflation rose 4.7% in April versus 4.6% in March.

A monthly U.S. labor market update due out on Friday will show whether the strong growth recorded in April carried over into May. In April, the economy generated 253,000 new jobs, exceeding most economists’ expectations and rising from 165,000 in the previous month. May’s unemployment rate slipped to 3.4%, the lowest level since 1969.

Source: John Hancock Investment Management

Unemployment Rates

What Do You Know About Innovation?

Innovation is powerful. When new technologies take hold, they can revolutionize products, practices and industries, making older technologies obsolete. As a result, companies must adapt to remain competitive or disappear.

In economics, this concept is called creative destruction. It was introduced by economist Joseph Schumpeter in 1942. In his book, Capitalism, Socialism and Democracy, Schumpeter explained that

the cycle of obsolescence and renewal is an essential aspect of capitalism that drives economic growth. See what you know about innovation and creative destruction by taking this brief quiz.

1. Investors are enthusiastic about an innovation that has helped drive stock market returns higher this year. What is it?

a. Vertical farming

b. Air taxis

c. Artificial intelligence

d. Quantum computing

2. One innovation resulting from the COVID-19 pandemic was remote work. How did this affect the economy?

a. Demand for office space fell

b. Employment among workers with disabilities rose

c. Hotel stays lengthened as people combined business and leisure

d. All of the above

3. The World Intellectual Property Organization’s Global Innovation Index identifies the most innovative economies in the world. In 2022, which country was the most innovative? (This country has led the pack for a dozen years.)

a. Switzerland

b. United States

c. Sweden

d. United Kingdom

4. Which of the following innovations resulted in creative destruction?

a. Streaming services

b. Assembly lines

c. E-commerce

d. All of the above

Answers: 1) c; 2) d; 3) a; 4) d

Phone: (615) 709-8709

Fax: (615) 505-3306

eMoney

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