Market Commentary — June 5, 2023

US stock benchmarks ended last week with solid gains, with the S&P 500 reaching its highest intraday levels since August 2022. The NASDAQ Composite notched its sixth consecutive weekly gain in strength among technology names. But in contrast to past weeks, this week’s rally was not just megacap tech-focused, but broadly based including both growth and value names and even small caps.

A debt ceiling agreement was already largely priced-in, so that was something of a non-event last week. Still, markets were relieved that the debt limit was raised to stave off a government bond default. The big market mover was economic data. On Wednesday, stocks pulled back on jobs data indicating job openings rebounded more than expected in April, hitting their highest level (10.1 million) since January. The March data was also revised upward.

So does this mean a June rate hike is back on the table? The CME rate hike probability tool ratcheted the odds back up to almost 75% for a 25 bps hike on the job data news.

Friday’s non-farm payrolls report was also surprising to be on the upside, but there was some evidence that the job market is cooling. Employers added 339,000 jobs in May, well above the consensus expectations for 190,000. But the unemployment rate—estimated by surveys of households—surprisingly rose to 3.7% from 3.4%.

One confusing factor is that the business “establishment survey” showed the number of jobs rising 0.2% in May, while the “household survey” showed the opposite, a 0.2% decline. Which job market data should you believe? A key difference between the two surveys is that the household survey measures self-employed workers, while the establishment survey does not. The number of self-employed workers fell by 369,000 in May. Some say the household survey is a better indicator of a pivot point in the economy, suggesting self-employed workers are re-entering the traditional workforce. Maybe the gig economy isn’t all it’s cracked up to be?

There were some encouraging inflation signals to counter the mixed jobs data. The Institute for Supply Management’s (ISM’s) Manufacturers PMI for May experienced its seventh straight month of contraction in factory activity and prices paid for supplies and other inputs by manufacturers contracted at their fastest pace since December, ahead of expectations.

In ETF land, the flood of money into fixed-income ETFs is drying up in favor of a rotation back into equities. According to Bloomberg, inflows into bond ETFs totaled just $90 million the last week, a 99% decline from the week before.

ProShares pulled its application for a 2X levered Bitcoin futures ETF, but they also filed for an S&P 500 “daily” covered call strategy.

RexShares filed for 19 new single stock ETFs called IncomeMax which adds a covered call strategy to specific stock exposure. It looks like another firm, YieldMax ETFs is doing the same thing. And First Trust came out with another CashCow-like filing which tilts on cashflow yield.

Finally, in merger news, Franklin Templeton is buying Putnam Investments for $925 million, but the total potential transaction consideration and retained value is estimated to be between USD $1.7-1.8 billion.

EQM Indexes has an exciting new Index Product announcement next week – stay tuned for that – and have a wonderful first week of June! Hope you caught sight of the strawberry full moon.

Jane Edmondson
CEO and Co-Founder

About

EQM Indexes LLC is a woman-owned firm dedicated to creating and supporting innovative indexes that track growth industries and emerging investment themes. Co-founded by Jane Edmondson, a former Institutional Portfolio Manager with more than 25 years in the investment industry.

Disclosure

The information provided on this page is for illustrative purposes only and is not intended to serve as investment advice. The information provided is as of particular time and subject to change at any time without notice.

It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. EQM Indexes does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. EQM Indexes Indices makes no assurance that investment products based on the Index will accurately track index performance or provide positive investment returns. EQM Indexes is not an investment advisor, and makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth in this article. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by EQM Indexes to buy, sell, or hold such security, nor is it considered to be investment advice.