Market Commentary — June 26, 2023

The major US equity indexes traded lower in a shortened by Juneteenth holiday week. The NASDAQ Composite suffered its first weekly decline in two months, while the S&P 500 Index dropped for the first week in six weeks. Growth stocks outpaced value shares, and large caps outperformed small-cap peers.

The annual Russell Reconstitution was Friday, following the S&P rebalances last week. There is a lot of money shifting around associated with those events.

Another interesting item of note sourced from the Financial Times is that $40 billion flooded into US ETFs the week ending June 14, marking the sixth-largest haul on record according to ICI. Money continues to “leach” from mutual funds with $7b of outflows coming from there, but the other $29 billion of inflows suggests that investors were moving cash off the sidelines last week as CPI inflation data slowed to 4% and the Fed rate hikes paused.

So the irony of course is that markets were down last week, after the mid-month FOMO inflow surge. The signal that further Federal Reserve rate hikes were likely on the horizon, weighed negatively on sentiment. As did news on Thursday of accelerated 50 bps rate hikes from the Bank of England and Norway’s Norges central bank.

On the economic data front, weak manufacturing and jobs data renewed recession fears. U.S. manufacturing activity fell back to its lowest level since December, well below consensus estimates. And suppliers cut prices at the fastest pace since the heart of the pandemic lockdown in May 2020, suggesting weakening demand. On the jobs front, weekly jobless claims hit 264K, the highest level since October 2021, countering Fed assertions of a tight job market. One anomaly was the housing data, with housing starting at its highest level in over a year and existing home sales surprising on the upside.

In ETF news, the Blackrock Bitcoin Trust filing has spurred a bunch of additional filings (Wisdom Tree, Invesco, Valkyrie, etc.) as other issuers hope this could finally provide a path for approval of a spot bitcoin ETF. Is Blackrock’s filing really a game-changer? Only time will tell, but Bitcoin now sits at a 1-year high among the excitement and GBTC’s NAV discount narrowed to 37% from 44% a week ago.

And both Pimco (BILZ) and Global X (CLIP) are launching ultra-short government bond ETFs as the inverted yield curve continues to provide opportunities for yield in short-duration Treasury assets. Those funds are also likely gunning for money market assets, which have received enormous inflows this year in the wake of the regional banking crisis. Pimco also launched a Multisector Bond Fund (PYLD) which will be actively managed by a team led by Dan Ivascyn of Pimco Income Fund fame.

Have a great week everyone as we close out the second quarter!

Jane Edmondson
CEO and Co-Founder

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