Given all the events in motion with the economy and markets these days, on an occasional basis we will begin providing some brief perspectives from our investment team’s vantage point on market trends for our Napier newsletter readers.
Looking back over the past several months, equity markets have had a lot of serious issues thrown at them and have held up surprisingly well. Despite the headline risk, the debt ceiling drama was mostly met with a yawn, bank jitters and tightening credit have so far had minimal impact on the broader market, an uneven earnings season created minimal volatility, and slowing economic growth forecasts indicating a possible recession sometime in the future (near, or several quarters ahead) have done very little to curb buyers’ enthusiasm. As of Monday, the S&P 500 is up north of 22% since 2022 intraday lows on October 13th; the Nasdaq 31%. Typically, when you see markets displaying resilience to bad news such as this, it tends to be positive for continuing market trends.
However, when peeking under the hood at the underlying market action, it’s notable that broad participation has been practically nonexistent and has in fact held back further upside. Only three sectors have been leading the charge so far in 2023: technology, communication services, and consumer discretionary. Considering the sharp rally we’ve seen, particularly in the tech space, we think it’s a reasonable assumption to expect some profit taking ahead. Should that take place, we’ll be watching closely to see if the money rotates into other market sectors, which could provide fuel for a broader based rally, or if it winds up on the sidelines in cash, which would not be particularly bullish.
For the month of June, the most important scheduled event will be next Tuesday and Wednesday’s Federal Reserve meeting, with a rate decision due at the conclusion of the meeting. Market participants are currently expecting the Fed to hold rates steady, with the jury out for possible additional hikes later this year. The Fed’s job got more complicated with last Friday’s stronger than expected employment report, which continues to indicate underlying US economic strength, something the Fed is attempting to slow to rein in inflation. Prior to the meeting, the Fed will also be able to view the consumer price index (Tuesday) and the producer price index (Wednesday). All three upcoming events have the ability to significantly move markets one way or another, as market participants try to decipher the outlook for Fed policy, inflation, and the economy.
If you wish to discuss our investment outlook further, please contact Nick Berlen to schedule a meeting with a member of the Napier Financial Team. (nberlen@napierfinancial.com; (781) 884-2355).
Investment advice offered through U.S. Financial Advisors, a registered investment advisor.
