Week in Review: June 2, 2023


Week in Review: June 2, 2023

Mixed message in the jobs report, but overall the employment picture remains too strong for the Fed 


Market summary

The major indexes were higher this week, with the S&P 500 posting a third straight weekly gain and Nasdaq up for a sixth straight week, matching the longest streak since December 2019 into January 2020. Sectors were all higher though fairly mixed. Treasuries were slightly firmer across the curve but ended off their best levels after a big Friday selloff. The dollar index was down, breaking a three-week streak of gains.

This week

Growth in nonfarm payrolls gained momentum in May, with upward revisions to the prior months. Nonfarm payrolls rose by 339,000 in May, well above expectations for a less than 200,000 reading (see Figure 1). The increase in jobs was broad-based, with gains in both services-producing and good-producing segments. 

Employment in services, which is a significant driver of overall job growth, rose by 257,000 in May, up from 225,000 in April. Within services, we saw robust job growth in transportation, health and education, and leisure and hospitality. Job growth for services was steady in the professional and business sector, slowed in the financial activities categories and declined in the information sector. Employment in goods-producing industries rose by 26,000 in May, following a 28,000 increase in April. Gains in May were led by a 25,000 rise in construction employment. Employment in manufacturing slipped by 2,000, in line with other signs of a loss of momentum in that sector. 

While nonfarm payroll growth indicates a resilient labor market, other factors in the employment report paint a more mixed picture. The household survey measure of employment significantly fell, pushing up the unemployment rate to 3.7% in May from 3.4% the prior month, the highest level in the past seven months. The drop in the survey also brought down average weekly hours worked to a three-year low. 

The one piece of the labor report that showed a more balanced jobs market was slowing wage pressures, which is a welcome development for the Federal Reserve (the Fed). In May, average hourly earnings increased by 0.3% month over month (MoM), after rising 0.4% the prior month, and by 4.3% year over year (YoY) in May, down from 4.4% the prior month. The average hourly earnings data illustrates wage growth is slowing and off its early 2022 peak but is still too strong for the Fed (see Figure 2). The Fed estimates that YoY wage growth of about 3.5% as consistent with its 2% inflation target, and while we’re still above the Fed’s target, we believe that wage pressures will continue to ease throughout 2023. 

The labor market remains far too tight for the Fed's liking. The Fed wants as much time as possible to assess the impact of cumulative rate hikes and tighter lending standards filter into the economy as well as the impact of a decline in bank lending. The tightening of lending standards will reduce the availability of credit, particularly to small and medium businesses that are the core of the labor market. However, if the June jobs report doesn't exhibit signs of a softening labor market, a July rate hike could be back on the table.

Debt ceiling update

Earlier this week, President Joe Biden and House Speaker Kevin McCarthy finalized their deal to raise the debt ceiling, and later this week, the bill easily passed the House and Senate with comfortable majorities. In the end, the debt ceiling negotiations played out largely as we’d expected: with a deal that was reached at the last minute. The new caps on discretionary spending weren’t as bad as expected, and there wasn’t a push for matching tax increases. The resumption of student loan debt repayments will represent a modest drag on the economy from Q3 2023 onward (see Figure 3).

Equity market focus 

At first glance, the S&P 500 has enjoyed a surprisingly robust start to the year; however, trends beneath the surface suggest more than meets the eye. So far this year, nearly 68% of the S&P 500 have had negligible or negative contributions to performance while just 14 companies have comprised what represents the entire gains for the index. Performance has largely been concentrated within the largest companies, termed "mega caps." The top 10 constituents of the index now represent nearly 35% of the index on a market cap weighted index, a historic high. In our view, this development reflects the desire for investors to gain upside potential to equities while protecting against the downside via exposure to higher-quality and profitable segments.

Going forward

Equity and bond markets will suffer through pockets of elevated volatility until there’s a meaningful and consistent decrease in inflation, and the duration of higher rates is more certain as markets become comfortable with a “data-dependent” Fed that’s now focused on the cumulative effects of rate hikes. We remain defensive in our positioning, and we’d look for opportunities to upgrade portfolios during market weakness. 

Within equities, we continue to favor U.S. Large Cap exposure, since China’s evolving COVID policies continue to weigh on manufacturing and growth. We’ve recently become more constructive on Developed International equities, as the energy recession wasn’t as severe as anticipated. In the United States, large-cap equities provide an attractive blend of quality, yield and growth at a reasonable value, albeit at higher valuations, as earnings expectations continue to deteriorate. For fixed income, we recommend a barbell positioning, with an overweight to short- and longer-dated bonds. We remain defensive in our credit positioning and higher in credit quality. We expect that credit spreads will leak wider to account for slowing growth and recession risks.



  • April’s durable orders are expected to decline by 0.2% MoM and will be released on Monday. 
  • May’s Institute of Supply Management (ISM) Services PMI is expected to increase to 52.1 and will be released on Monday. 

Figure 1: U.S. nonfarm payroll employment (in thousands)

Debt Ceiling

Sources: Bloomberg, First Republic Investment Management, as of June 2, 2023.

Figure 2: U.S. average hourly earnings by industry (Year-over-Year percentage change)

Debt Ceiling

Sources: Bloomberg, First Republic Investment Management, as of June 2, 2023.

Figure 3: T-bill yields realign (percentage)

Debt Ceiling

Sources: Bloomberg, First Republic Investment Management, as of June 2, 2023.

Market Returns (USD) as of 6/1/2023





Global Equities

MSCI All Country World

1.1% 1.4% 8.8% 2.7%

S&P 500

1.7% 3.0% 10.8% 4.7%

Dow Jones Industrial Average

1.0% -0.2% 0.7% 3.0%


3.2% 7.4% 25.7% 10.2%

Russell 2000

0.8% -1.7% 1.0% -3.2%

Russell 1000 Equal Weighted

1.0% -3.7% -0.9% -7.2%


0.1% -0.1% 8.3% 5.3%

MSCI Emerging Markets

-0.2% -2.5% 1.4% -7.4%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.6% -0.9% 1.0% 1.0%

Bloomberg Barclays Intermediate Government/Credit

0.9% 0.1% 2.4% 0.0%

Bloomberg Barclays High Yield Bond

0.7% 0.4% 4.0% 0.4%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

4221.02 4151.28 3839.5 4101.23

Dow Jones Industrial Average


33061.57 32764.65 33147.25 32813.23

10-Year U.S. Treasury Yield (Constant Maturity)

3.61% 3.83% 3.88% 2.94%

Gold ($/oz)

$1,977.65 $1,941.41 $1,824.56 $1,846.50

Crude Oil ($/barrel)

$70.10 $71.83 $80.26 $115.26

U.S. Dollar / Euro ($/)

1.07 1.07 1.07 1.07

U.S Dollar / British Pound ($/£)

1.25 1.23 1.2 1.25

Japanese Yen / U.S. Dollar (¥/$)

138.95 140.06 131.95 129.94

Bitcoin Futures ($/XBT)

$26,925.00 $26,490.20 $16,498.08 $30,035.00
Sources: Morningstar, FactSet

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