Farmers & Merchants Bank

While new car prices have continued to move higher, used car prices continue to decline. The Mannheim Used Vehicle Index fell 10.3% in June from its prior year reading, which represented the tenth consecutive month of annual declines. This reduction in used car prices has been a factor in lower inflation readings as evidenced by this week’s release of the latest Consumer Price Index report. The June annual increase of 3.0% was the lowest since March 2021.

Employment Data

Employment data was another significant theme in this week’s economic releases. Nonfarm payrolls grew less than expected with an increase of 209,000 while the JOLTS report of current job openings came in at 9.8 million. The unemployment rate ticked lower registering 3.6%. Labor statistics are showing some moderation but are still running at higher levels than the Federal Reserve (Fed) wants to see. This is a key contributor in the current 88.8% probability that the Fed will increase short term rates at the Federal Open Market Committee meeting later this month.

Equity Markets

Equity markets continued to move higher this week, buoyed by the continued moderation in the rate of inflation, with the Russell 3000 Index of domestic stocks advancing 0.7%. Small cap stocks were considerably stronger with a return of 2.0% for the period. The second quarter earnings reporting season commences this week with a consensus view that corporate earnings will show an aggregate year-over-year decline of 6.8%. Positive year-over-year results are forecast for the second half of the year. International equities as measured by the MSCI EAFE Index did not fare as well as their domestic counterparts for the week having declined - 1.3% for the period.

Fixed Income Market

Fixed income investors saw a positive return for the week as the broad bond market returned 0.6% for the week. Interest rates declined slightly with the 10-year U.S. Treasury issue registering a yield of 3.86% to end the week after starting at 3.93%.