WEEK IN REVIEW
ending June 16, 2023
One of the Best Starts in History
A week after entering a bull market, the S&P 500 recorded its fifth weekly gain in a row, its longest such streak since November 2021. This is now the best start to a year since 1997 for the S&P 500 and one of the best in history. A far cry from the hard landing that was top of mind at the start of the year.
With A.I. excitement running rampant and interest rates peaking, the positive momentum looks set to continue.
U.S Inflation Hits Two Year Low
The U.S. consumer price index rose at an annual rate of 4% in May, the lowest figure in over two years. While falling inflation numbers is good news, it’s worth noting that the 4% reported doesn’t exactly tell the full picture. Core CPI, which excludes volatile costs such as energy and food came in at a stubbornly high 5.3%. Is this core inflation now more deeply entrenched after 2 years of rising prices?
With A.I. excitement running rampant and interest rates peaking, the positive momentum looks set to continue.
The Fed Press Pause
On Wednesday, the Fed left it’s benchmark rate unchanged, ending a string of 10 consecutive rate hikes. Despite the pause, Fed officials signalled they would raise interest rates again before the end of the year if the economy and inflation don’t cool further – No surprises there.
Market Outlook
Granted, much of the ‘market strength’ is merely the magnificent seven plaster over the cracks elsewhere. Still, even the doomsday economist will have to finally admit that the economy has been much more resilient than expect.
Unemployment remains near record lows while the U.S. retail strength remains unperturbed. Retail sales rose 0.3% relative to the prior month, extending the positive trend from April’s 0.4% gain.
Markets and economies are inherently cyclical so eventually jobs will roll over and retail sales will drop, but for now, the ‘immanent recession’ has been put on the back burner thanks to a resilient U.S. economy, falling inflation, an improvement in earnings estimates and a pause in the hiking cycle.
There is no way of knowing exactly what stock prices will do in the second half of the year but the bottom line is markets now appear more stable than at any point this year and markets are running higher as a result.
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