Last Monday, I wrote about “market positives” and “market concerns.”

The positives shined bright last week, as the Fed propelled the market to new highs for the year.

The positives mentioned last Monday; Corporate profits have been better than expected, the consumer continues to spend, and the Fed is close to the end of its rate tightening cycle.

  • Retail sales reported higher by .3%, versus expectation of a .1% decline, reflecting the resilient strength of consumers
  • The Fed paused, and kept interest rates unchanged, but indicated two more .25% rate hikes this year. Whether or not the Fed does raise 2 more times, we are close to the end of the rate hiking cycle, unless inflation reasserts itself.
  • The Consumer Price Index (CPI) reported rising .1% for May and now 4% over the last 12 months. Stripping out Food and Energy, the increase was .4% for May and 5.3% over the last 12 months. The good news is we are seeing the numbers headed in the desired direction.
  • The Producer Price Index (PPI) continued to show signs inflation is abating, reporting a monthly decline of (.3%).

Stocks Headed Higher

Last week’s market witnessed broad participation helping the markets move higher. The only sector down was energy (out of the 11 sectors in the S&P 500).

The S&P rose 2.58%, the Dow 1.25%, the Nasdaq climbed 3.25% and the Russell 2000 lagged however was up .52%.

Over the pond, foreign stocks rose 2.61% and emerging market stocks popped 2.56%.

Out of the 11 S&P sectors, 7 are higher for 2023 and 4 are still in the red, which include utilities, health care, financials and energy.

The Week Ahead

During this shortened trading week, we will hear reports on the housing market, as well as several Federal Reserve speeches. Even though earnings season won’t kick in until mid-July, we’ll hear reports from FedEx, which is a good indicator of business overall.

Will the market move higher from here? Typically, when the market finally breaks thru a “resistance” level, such as 4200 on the S&P 500 and moves aggressively over the next level of 4300, more gains typically follow over the next 6 months.

Let us hope that 3 things happen over the next few months:

  1. Corporate Profits continue to improve.
  2. The economic slow-down that so many expect is not as impactful as many are suggesting.
  3. Inflation numbers continue to move downward.

#s 1 and 3, I believe, will hold true. How much the economy may slow over the next few months is a guessing game at this point. Will higher rates finally bite the overall economy? Will diminished excess household savings dent consumer spending?

Certainly, a couple of points that worry many, however, keep in mind, the market loves to climb that wall of worry! Let us just hope it does not climb too high, too quickly.

How Diversified is the S&P 500?

With the S&P 500 surprising practically everyone to the upside, I looked inside at the actual diversification of the 500 companies

According to Morningstar, 38% of the companies are classified as “Large Growth stocks, 18% “Large Value stocks” and 26% “Large Blend stocks”. The remaining 18% classified as Mid-cap stocks and 0% classified as small-cap stocks.

The S&P 500 is an extremely useful index to anchor your portfolio, however, keep in mind it’s not as diversified as many believe!

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