Presented by The PensionmarkMeridien Team, August 2023
MAJOR U.S. STOCK INDEXES
The recent market rally showed signs of broadening throughout July, with underappreciated sectors like industrials and transports 1 filling the shopping lists of eager bulls.
Buyers were consistent throughout the month, with the S&P 500 notching three straight weeks of gains2 during July and the Dow Jones Industrial Average booking thirteen3 consecutive positive trading sessions.
For July, the mega-cap tech-heavy Nasdaq 100 increased by 3.81%4, the S&P 500 was higher by 3.11%5, and the Dow Jones Industrial Average increased by 3.35%6.
VALUATION CONSIDERATIONS
With such a sharp rally recently in the major U.S. stock indexes, many prospective investors are wondering: “What may be a good investment at these levels?”
There is no doubt that the recent market rally has been fueled by a combination of cooling inflation, a potentially nearly-complete Fed hike campaign (more on that in a minute), and AI/tech stocks.
JULY RATE HIKE
Meeting market expectations, the Federal Reserve raised7 the U.S. benchmark lending rate by 0.25% at its July meeting. The most recent interest rate hike comes after a pause in the June meeting and brings the Fed’s target interest rate range to 5.25% – 5.50%.
Jerome Powell, the chair of the Federal Reserve, emphasized8 the Fed needs to see evidence that inflation is “durably down” and stated that the central bank would be assessing interest rates on a “meeting-by-meeting” basis.
While there is no crystal ball, markets are pricing in a better-than-even probability that there will not be any more rate hikes this year. However, it is too early to tell.
The July Fed rate hike brings the U.S. benchmark interest rate to its highest level in 22 years9.
JOBS GROWTH
Nonfarm payrolls for June (released on July 7th) missed analyst expectations, showing 209,00010 jobs created versus 240,000 expected.
The weaker-than-expected employment data could help the Fed achieve a soft-landing for the U.S. economy.
MORE INFLATION MODERATION
CPI:Are you noticing any changes in the pricing of items you have purchased lately?
According to the latest June Consumer Price Index (CPI) data, inflation has been cooling for twelve consecutive months11. Notably, we observed a softening in inflation in areas such as food, used vehicles, and airline prices at the last reading.
- CPI increased only 0.2% month-over-month versus the 0.3% expected.
- CPI increased 3%12 from one year ago versus the 3.1% expected, the lowest level since March 2021.
- Core CPI (excludes food and energy) rose 4.8% from one year ago.
- Food prices are still higher by 6.7% from a year ago.
So, the year-over-year CPI metric decreased from 4% in May to 3% in June, fueling investor optimism.
Core PCE: The Fed’s favorite inflation gauge dropped to its lowest annual level in nearly two years last month, rising by 4.1%13 from one year ago versus estimates for 4.2%.
Markets reacted positively14 to the PCE data indicating that inflation has cooled further.
THE TAKEAWAY
July featured the overall stock market rally spilling over to other sectors and industries outside of AI and tech.
The Fed will remain data-dependent on a meeting-by-meeting basis, per the commentary from the last meeting. With labor market data missing expectations last month and cooling inflation metrics, one could deduce that the Fed’s plan has been working. Investors will continue to look for clues of the Fed completing its rate hiking cycle, but it is too early to know with any certainty.
With that said, remember – long-term investing works. If you have any questions or concerns. We are always here as a resource for you.
The PensionmarkMeridien Team may be reached at 866-871-9963 or
https://pensionmarkmeridien.com/
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This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Citations:
1)Business News, July 20, 2023
2)CNBC, July 28, 2023
3)Investopedia, July 26, 2023
4)Trading View, July 31, 2023
5)Trading View, July 31, 2023
6)Trading View, July 31, 2023
7)CNBC, July 26, 2023
8)CNBC, July 26, 2023
9)ABC News, July 28, 2023
10)CNBC, July 7, 2023
11)NBC News, July 11, 2023
12)CNBC, July 7, 2023
13)CNBC, July 28, 2023
14)CNBC, July 27, 2023
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