Dumaine Investments Weekly Market Update – June 14, 2023
• From a technical perspective, the S&P 500 entered bull market territory last week after gaining 20% from its October 2022 low. The rally has been driven in large part by an AI tech boom, positive economic data, and a consensus view that the Fed would pause its rate hikes in June. Despite these gains, many analysts remain skeptical about the market’s ability to sustain a rally in the face of weakening productivity and lackluster corporate profits. Michael Wilson from Morgan Stanley warns that the current market looks very similar to the bear market of the 1940s, when stocks rallied 24% before hitting a new low.
• On Wednesday, the Fed opted to pause their hiking cycle for the first time in 15 months. The decision came in the wake of consumer inflation data that were broadly in line with expectations, and producer price index data that were below forecasts. Chair Powell indicated that he feels additional time is needed to evaluate the full impact of past hikes on the economy, as well as recent banking turmoil. Clearly, with core inflation still well above 5%, the Fed is keeping its options open, and indicated that it will likely hike rates at least once more this year before pausing for an extended period.
• We feel it is important to restate our belief that once the Fed ends the current tightening cycle, it is extremely unlikely that interest rate cuts will come anytime soon. Given that the Fed remains committed to its 2% inflation target—as consistently communicated by Powell and other Fed officials—and core inflation is coming down from such a high level, it may be several quarters, if not longer, before the Fed’s extended pause shifts into an active easing cycle of rate reductions.
DISCLAIMER: The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Investment decisions should be based on individual financial goals, risk tolerance, and consultation with a qualified financial professional.