Market loses momentum as June comes to a close following an extraordinary first half rally

**Wall Street Prepares to Close a Strong First Half of 2023**

As the second quarter comes to a close, Wall Street is experiencing a stronger performance than many investors anticipated. Although the future direction of the markets is still uncertain, all three major benchmarks have shown positive gains this year. The Dow Jones Industrial Average has achieved a modest 1% growth, while the S&P 500 has seen a significant rise of over 13%. However, the clear outperformer has been the tech-heavy Nasdaq Composite, which has surged by more than 28% in 2023. This growth can be attributed to increased investor enthusiasm for artificial intelligence plays and growing optimism about the Federal Reserve’s rate hiking campaign coming to an end.

**Mixed Week for the Markets**

Despite the strong performance throughout the first half of the year, all three major averages experienced a setback last week. The Nasdaq recorded a losing week after eight consecutive weeks of gains, and the S&P 500 saw its first weekly decline in six weeks. The decline can be partly attributed to recent comments from Fed Chair Jerome Powell, who adopted a hawkish stance, as well as an unexpectedly large rate hike from the Bank of England. Additionally, there are concerns among strategists that the stock market may be overvalued. Solita Marcelli, the Global Wealth Management Chief Investment Officer for the Americas at UBS, expressed caution about current valuations, suggesting that the stock market may see lower annualized returns over the next decade compared to historical averages.

**Economic Calendar for the Final Week of June**

Heading into the final week of June, the economic calendar appears relatively light. However, the limited data sets available could provide valuable insights into the market’s trajectory for the second half of the year.

**Key Inflation Data in Focus**

One significant report to keep an eye on is the core personal consumption expenditures (PCE) index, which is the Fed’s preferred inflation gauge. This report, scheduled for release on Friday, is expected to show a 0.3% increase in core PCE for May, following a 0.4% increase in the previous month. Year over year, the inflation measure is projected to have risen by 4.6%, above the Fed’s 2% target. However, the rate of increase has moderated over the past six months. Investors are particularly interested in whether the pace of inflation will slow down. The core PCE number is expected to impact market sentiment, though additional economic indicators and jobs data in July will further inform investors’ perspectives.

**Housing Data Provides Insights**

Investors will also closely monitor housing data released next week to gauge the broader strength of the sector. The recent announcement of stronger-than-expected May housing starts sparked optimism, and investors are eager to determine whether this trend reflects the sector’s growth. Reports to watch out for include Tuesday’s new home sales and Thursday’s pending home sales data for May. Economists anticipate a 1.2% decline in new home sales and expect pending home sales to remain flat. The results of these reports will help investors discern whether the market rally witnessed recently will continue into the second half of the year.

**Conflicting Views on Market Outlook**

Bank of America strategist Stephen Suttmeier suggests that the S&P 500 could rally past 4,500 in a “fear of missing out” (FOMO) rally. This positive outlook contradicts BTIG’s Jonathan Krinsky’s warning that tech names could experience a decline equally as impressive as their recent rally. Therefore, there are differing opinions within the industry about the market’s future performance.

**Seasonal Factors**

From a seasonal perspective, investors can expect an upswing on the final trading day of the quarter. Historical data reveals that both the Dow and the Nasdaq have ended higher on nine out of the last 12 final trading days in June.

**Outlook for the Coming Weeks**

Art Hogan, Chief Market Strategist at B. Riley Wealth Management, anticipates that stocks may trade sideways as June concludes and the new month begins. With a lack of significant economic data or events to impact the markets in the next two weeks, Hogan expects that there won’t be any major shifts in sentiment until more influential indicators emerge.

**Week Ahead Calendar: Key Events and Earnings**

– Monday: Carnival (Earnings)
– Tuesday:
– Durable goods orders (May)
– S&P Case-Shiller Home Price Index (April)
– New home sales (May)
– Consumer confidence (June)
– Walgreens Boots Alliance (Earnings)
– Wednesday:
– Wholesale Inventories (May)
– General Mills and Micron (Earnings)
– Thursday:
– Initial jobless claims (week ended June 24)
– GDP first-quarter final read
– Pending home sales (May)
– McCormick, Paychex, and Nike (Earnings)
– Friday:
– Personal consumption expenditures index (May)
– Consumer sentiment (June final read)
– Constellation Brands (Earnings)

**In Summary**

Wall Street is ending the first half of 2023 with stronger performance than expected. The tech-heavy Nasdaq Composite has been the standout performer, driven by AI plays and optimism regarding the Fed’s rate hiking campaign. However, recent events, along with concerns about overvaluation, have led to a decline in the markets. As the focus shifts to the final week of June, investors will closely monitor key inflation and housing data for insights into the market’s trajectory for the second half of the year. Conflicting opinions exist regarding the market outlook, and investors can expect some seasonal ups and downs. However, with limited economic data and events in the coming weeks, the markets may trade sideways until more influential indicators emerge.

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