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The rally in equities ground to a halt last week with the S&P 500 Index -1.4%, the Dow -1.7%, and the NASDAQ -1.3%. The 10-year U.S. Treasury note yield decreased to 3.739% at Friday’s close versus 3.769% the previous week.
Fed Chair Jerome Powell testified to Congress last week. He reiterated that the effort to bring the rate of inflation back to 2% “has a long way to go”. Despite holding rates steady at the June Federal Open Market Committee (FOMC) meeting, he said that nearly all Committee participants expect further rate increases will be appropriate by the end of the year. The odds of a 0.25% increase in Fed funds at the July FOMC meeting is currently 71.9%.
This week, the May Personal Consumption Expenditures (PCE) Price Index is scheduled for release on Friday. The PCE Price Index is the Federal Reserve’s main data set to measure inflation. At the last FOMC meeting, the Committee raised its 2023 outlook for core inflation to 3.9% versus 3.6% previously. Powell stressed the FOMC would be data dependent on decision for future interest rate policy and the progress on lowering the pace of inflation is a key component to that decision making.
Second quarter earnings expectations for the S&P 500 Index is a 5.6% year-over-year earnings decline on a revenue decline of 0.6%. Current expectations for full year 2023 earnings are an increase of 1.4% on revenue growth of 1.8%.
In our Dissecting Headlines section, we look at the Independence Day travel forecast and cost of a barbeque.
Financial Market Update
Dissecting Headlines: Independence Day
The American Automobile Association (AAA) projects 50.7 million Americans will travel 50 miles or more from home this Independence Day weekend. This level of travel would set a new record for the holiday. Domestic travel is forecasted to increase by 2.1 million people compared to 2022, the previous record set in 2019 of 49 million travelers.
AAA expects 43.2 million people will drive to their destinations (+2.4% year-over-year and +4% versus 2019). Gasoline prices are lower versus last year at $3.55 per gallon versus $4.80 per gallon in 2022.
Air travel is also expected to set a new record. AAA projects 4.17 million Americans will fly to their destinations this Independence Day weekend (+11.2% year-over-year and +6.6% versus 2019).
For those attending a traditional barbeque, costs are approximately 3% higher year-over-year to $97 for a 10-person meal according to the Rabobank BBQ Index. Beef prices remain high, while some other ingredients such as chicken, lettuce, and tomatoes are lower year-over-year.
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