The Week in Review: July 24, 2023
This Year’s Surprising Market Rally
The S&P 500 Index is up 18.15% since the end of last year. It has advanced 26.82% since bottoming on October 12, 2022 (measuring through 07/21/2023)¹. Both metrics exclude dividends reinvested.
The S&P 500 Index covers about 80% of available market capitalization, per S&P DJ Indices.
The index includes firms from all the major economic sectors, but it is a market-cap-weighted system, leading to the larger firms having a more significant impact on the index.
According to S&P Dow Jones Indices, the top ten stocks in the index account for 30% of the S&P 500. Earlier in the year, the top seven stocks in the S&P 500 by market capitalization, including Microsoft (MSFT), Amazon (AMZN), Nvidia (NVDA), and Meta Platforms (META, Facebook), accounted for a big share of the advance.
Market capitalization roughly equals the price of a stock multiplied by the number of shares outstanding.
However, the market rally has broadened since the beginning of June, according to Bloomberg, and that’s good news.
What’s behind this year’s rally?
The unexpected rally this year can be attributed to four significant elements.
Despite widespread warnings that the economy could be in a recession by now, a downturn has yet to materialize. Economic forecasting isn’t always reliable, and thus far, those who predicted a recession have been incorrect.
Inflation has begun to moderate, and investors believe an expected rate hike this week could be the Fed’s last. Penciling in one more rate hike may be premature, but the much slower pace this year has been a balm for the bulls. Those on a fixed income and families struggling to make ends meet seek stable prices, but investors would simply like the rate of inflation to continue to slow without an ensuing recession. Why is this so? Because a continued slowdown in the rate of inflation would probably mean the fed funds rate is near its peak.
It’s early, but so far, second-quarter profits are topping low expectations, according to Refinitiv. Investors don’t need a home run on earnings, but singles, doubles, and very few forced errors would be welcome.
The popularity of artificial intelligence (AI) helped fuel early-year gains in tech.
In summary, this year’s catalysts have been powerful: a resilient economy, a possible near-term peak in interest rates, the absence of an earnings season Armageddon, and the introduction of AI.
No one rings a bell when a bull market or bear market ends. While we will refrain from offering a year-end forecast for the S&P 500, historically, bear markets silently end when pessimism and investor angst are high. The October low was no exception.
Market Summary
Please do not hesitate to contact me if you have any questions or concerns.
Two for the Road
Roughly 650,000 Americans over 80 were working last year, about 18% more than a decade earlier. Some people have been pressed back into duty by inflation and stock-market volatility while some cite a simpler reason to keep working- they just want to. - The Wall Street Journal, June 25, 2023
Last year, 13,000 weddings in the United States cost over $1 million, or roughly 250 million-dollar weddings a weekend. - Numlock News, June 21, 2023
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1. St. Louis Fed, MarketWatch
2. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
5. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
6. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
7. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.