As we head towards the mid-point of 2023, the month of June brings the onset of Summer and provides a great opportunity to reflect on what has happened so far and what may be ahead for the remainder of the year. While the weather has changed with the warm and humid June sun, from the cold wintery months of January 2023 and late 2022, the capital markets have also experienced a similar change in conditions. Both the Equity and Bond markets have been rallying since the lows of Fall 2022.
As of the time of writing this article, the debt ceiling deal has passed in the house and senate and is heading to the president’s desk for signing. The markets seem to have been pricing in this deal for a while, with a very low probability of default. The focus now shifts to some of the factors discussed in previous writings, including U.S. Economic Data and the Fed rate decision, which will continue to shape the outcomes in the markets for the remainder of this year.
In general, for 2022, being underweight equities and bonds resulted in better portfolio performance. Very few asset classes were positive last year. Since then, we are growing cautiously optimistic at the prospects of a new bull market forming. While the equity indices have risen year-to-date, when viewing the S&P 500 as the benchmark, there is still room for further growth given that the robust appreciation of NASDAQ has been driven by only a handful of technology stocks. Confirmation of a bull market will come when there is more breadth to equity growth, with more companies participating in stock appreciation, rather than just the handful that have been the driving force thus far in 2023.
So what will the Fed rate decision be later this month? Some have argued that the capital markets have been pricing in a pause in Fed rates since late last year. Whether the Fed pauses, skips, or pivots, the chance of continued rate increases like we have seen during the past year have decreased tremendously, especially as traditional measures of inflation have come down. However, what remains persistent and counter to the Fed’s goal during a tightening process is the wage growth and unemployment data, which continue to show resilience in hiring and low unemployment. Whether the Fed skips a rate increase or pauses, there remains a high probability that we are at the end of the tightening process, which is traditionally good for stocks in the near to long-term.
We have been sharing these perspectives with clients during recent review meetings. Summer months present a great opportunity to meet with us, if you haven’t recently done so, to review your accounts and financial situation. We wish everyone an enjoyable end to Spring, send our congrats to the Graduates and look forward to connecting with you soon.
Shar Gogerdchi, CFP®