US markets fell last week with S&P500 down by 0.25% and hovering around bear market territory year to date having corrected about 20% YTD. The Fed’s preferred measure of inflation, the Personal Consumption Expenditure climbed by 6.3% in May, or 4.7% after stripping out food and fuel, which have started to show some moderation. Nasdaq fell -1.8% underperforming the S&P500 even despite the US 10-year yields falling below 3%, as investors are mixed as to whether the Fed is expected to reduce or maintain the pace of its rate hikes in the upcoming Federal Open Market Committee (FOMC). The ECB plans to start to raise rates in July and September for the first time in 11 years to tighten monetary policy in the medium term; Stoxx 50 was little changed during the week.
S&P 500 & Nasdaq Index (YTD)
US 10 Year Yield (%)
China markets continue to show their resilience up 1.1% during the week on the HSCEI. Caixin Purchasing Manager’s Index (PMI) rebounded to 51.7 compared to last month’s 48.1 which showed a sequential recovery t growth. Japanese equities fell 0.7% during the week after manufacturers’ business confidence fell in the second quarter due to input costs and global supply chain disruptions.
Lockheed Martin $Lockheed Martin(LMT)$ received an order from Greece to purchase 20 F-35 fighter jets. Furthermore, the Biden administration also supported the sale of F-16 jets to Turkey earlier. Amid the ongoing geopolitical crisis, with the long-drawn Russia and Ukraine war, global defense spending is expected to see a pick-up. It is expected that US defense spending may rise through 2023. Especially the Congress’s addition of the $25b budget on President Biden’s request and reports of $770b-$780b 2023 budget spending by the Pentagon request. This suggests an estimated 5% in 2023 growth in defense spending higher than the long-term US defense spending historically over the last 10 years. It is worth noting the defensive and counter-cyclical nature of defense spending considering the macroeconomic slowdown.
Chevron $Chevron(CVX)$ have corrected recently along with oil prices of concerns of slowing economic growth and even recessionary risks and its impact on demand for oil, however, YTD share price is still up 23.4% as of writing. Chevron is one of the leading US Oil Major focused on upstream production and have historically seen stable growth in its upstream production, Chevron’s production assets are diversified by region, and have limited exposure in Russia. Given the ongoing supply disruption from Russia, the supply-demand fundamental is expected to continue to favor oil producers with crude oil still above $100, which is expected to drive strong free-cash flows and return on capital for investors. The company have committed to $5b-10b of share buyback annually.
Comments
With the Ukraine war, Defence spending especially by US and its NATO allies will certainly be up. I shall put $Lockheed Martin(LMT)$ on my watch list to invest.
Oil prices will also continue to trend upwards due to supply constraints. $Chevron(CVX)$ is a good stock to add especially with the ban on Russian oil by US and its allies.
@TB_Research thanks for your excellent summary of this week's key global markets. It gives a great snapshot of the markets.