With the debt-ceiling debate behind us, and the first five months of 2023 now in the rear-view mirror, where do we stand?
Consumer spending has remained resilient, corporate profits have been better than anticipated, the labor market is still adding more jobs, there are signs inflation is slowly receding, and the Fed should be close to the end of it’s rate hiking regime. Seems to be an ideal environment for stocks to move higher?
Last Friday, with the jobs report producing 339K new jobs, the unemployment rate rising to 3.7% and wages now only increasing 4.3% over the last year, most stocks rocketed higher. It was a day the equal weighted S&P 500 significantly outperformed the traditional weighted S&P.
For the week, the Dow jumped 2.02%, the S&P 500 1.83%, the Nasdaq Composite rose 2.04% and the Russell 2000 Small Cap index jumped 3.26%. All these major stock indexes are now positive for 2023.
Over the pond, foreign stocks rose .71% and emerging markets up 1.38%.
Bonds continue to remain range-bound, with the yield on the 10-Year US Treasury ending last week @ 3.698%.
Looking at the Balance of 2023
Will consumer spending start to slow? Will the Fed continue to hike interest rates? Will the unemployment rate kick up as the Fed expects? Will corporate profits bottom and then start to rise? Has the stock market already priced in the positives for 2023? Where will market interest rates trend?
Of course, no one has the answers beyond logical speculation. Several of the major brokerage houses forecast markets to end the year around where they are now, or lower. Many are suggesting that market interest rates will begin to move lower as the economy slows.
It’s challenging to believe the economy will not slow, especially if you believe Federal Reserve rate hikes have a “lagging” impact.
The Fed has raised rates 5% in 15 months. When one moves this high in such a short time, to me, it’s an admission of prior miscues. Remember Powell saying he was willing to let inflation run hotter for longer? He certainly hit the ball out of the park on that one.
The next Fed announcement happens June 14th. Including this June meeting, there are 5 more Fed meetings left in 2023.
Prior to last week, market prognosticators were suggesting a rate hike was in the bag. After last Friday’s employment report, the odds makers are suggesting there is a 70% chance of a Fed “skip.” So now we have rates that will either rise, pause, skip, or reduce.
To me, a “skip” would indicate they really don’t know what to do, which is actually understandable. I still believe the Fed should do nothing, and leave rates as is, for the foreseeable future.
Seems to always comes back to this; a well-diversified, properly allocated portfolio based specifically on your situation remains sound advice.
How Far Back to the Top?
How far back to the top to reach the all-time index high??
- The S&P 500 which stands at 4285 needs to reach 4818, approximately 12.4% higher.
- The Dow Jones which currently stands at 33,762, needs to reach 36,952, 9.4% higher.
- The Nasdaq currently trading at 13,240 has an all-time high of 16,212, 22% higher.
- The Small-Cap Russell 2000 now trades at 1830 has a high of 2458, 34% higher.
One thing we all have in common, surpassing the 4 all-time highs will be welcome. How long will it take? When will it happen?
One can only speculate; however, I do believe it will in fact happen. It is a matter of time!