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Is the bear market actually over?
Are the bulls back or are we seeing another "bear market rally" that will eventually lose steam? Let's discuss.
When stocks are caught between surges and pullbacks, and it's not entirely clear what’s going on, it's useful to go back to the fundamentals.
What bullish factors support the rally?
1. Despite all the worrying, it doesn't look like a recession is here yet.2
The labor market is still extremely strong and the housing sector is showing signs of optimism again. More positive signs of a strong economy will support a rally.
2. Inflation seems to be under control and the Fed has (finally) paused interest rate hikes to see how the economy responds.3
Investors are more likely to stay optimistic if the Fed holds to its plan to limit future rate increases.
3. FOMO (Fear Of Missing Out). Some of the greedy sentiment behind this rally is due to a legitimate fear of missing out on the next bull market. No one wants to be on the sidelines when markets move.
What bearish factors could kill the rally?
1. The current surge has been largely driven by technology stocks and hasn't broadened across all sectors.4
That means any negative sentiment about these tech high-flyers is likely to have a disproportionate effect on the overall rally.
2. We still can't be certain that a recession won't hit this year and the economy is still facing headwinds that are likely to impact corporate earnings.2
3. Growth may be hard to come by for U.S. businesses.5 Since stock prices reflect the value of their underlying companies, earnings misses or negative surprises could tank sentiment.
Bottom line: For the rally to keep going, investors will not only have to stay positive about technology stocks but also gain confidence in the overall state of the economy.
Here's some good news: Whether or not the bear market is actually, finally over, the overall picture is looking brighter.
We’re watching closely and we’ll reach out if we have any specific advice for you. In the meantime, do you have any questions? Hit “reply” and let us know.
Until Next Week,
Your Eagle Wealth Team
Sami's Off-roading Again!
Sami Fournier, Tax Associate for our Eagle Wealth tax team, had an adventure packed weekend in May when she took part in The Main Event – Dirt Bike Campout in the hills of Jacksonville, Oregon. The event was presented by Dirtastic, a women’s only dirt bike club and training organization. Sami spent the weekend learning new dirt bike skills and riding on private trails in Southern Oregon. We’re all so impressed with her!
(Sami’s on the left with shades on)
(Beautiful views from above)
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The Week on Wall Street
Stocks took a breather last week as investors digested the previous week’s surge and the month-to-date solid gains.
The Dow Jones Industrial Average lost 1.67%, while the Standard & Poor’s 500 fell 1.39%. The Nasdaq Composite index dropped 1.44% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, tumbled 2.00%.6,7,8
Rally Stalls
The stock market drifted lower last week as the tug-of-war between bulls and bears played out in a week that was light on market-moving news.
After falling in the first days of a holiday-shortened trading week, stocks rebounded on Thursday to recover some of the week’s losses. Stocks looked past Congressional testimony by Fed Chair Powell, who said two more rate hikes are likely in the wake of interest rate hikes by central bankers in the U.K., Switzerland, Norway, and Turkey.
The retreat continued into Friday, fueled by global growth fears from new economic data indicating more robust economic slowdowns in the eurozone, Japan, and Australia.
Housing Sentiment Improves
Home builders' confidence edged into positive territory for the first time in 11 months, aided by strong demand, low inventory, and a recovering supply chain. May’s new home sales, which rose 21.7%–the most significant percentage gain since October 2016, validated this confidence. The number of new home starts in May (1.63 million) hit a 13-month high, with both single- and multi-family homes up substantially.9,10
Sales of existing homes in May rose 0.2% month-over-month while declining 20.4% from a year ago. The existing home market continues to suffer from low inventory and still-high prices. The median price of a home sold in May declined 3.1% year-over-year to $396,100.11
THE WEEK AHEAD
KEY ECONOMIC DATA
Tuesday: Durable Goods Orders, New Home Sales
Thursday: Gross Domestic Product (GDP), Jobless Claims
Friday: Personal Income and Outlays, Consumer Sentiment
Source: Econoday, June 23, 2023
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
COMPANIES REPORTING EARNINGS
Tuesday: Walgreens, Boots Alliance, Inc. (WBA)
Wednesday: Micron Technology, Inc. (MU), General Mills, Inc. (GIS)
Thursday: Nike, Inc. (NKE), McCormick & Company, Inc. (MKC)
Source: Zacks, June 23, 2023
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
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Any companies mentioned are for informational purposes only, and this should not be considered a solicitation for the purchase or sale of their securities. Any investment should be consistent with your objectives, time frame, and risk tolerance
1. https://www.cnbc.com/2023/06/19/stock-market-today-live-updates.html
2. https://www.fidelity.com/insights/markets-economy/recession-with-us
3. https://www.cnbc.com/2023/06/14/fed-rate-decision-june-2023.html
4. https://www.fidelity.com/insights/markets-economy/tech-stocks-performance
5. https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_060923.pdf
6. The Wall Street Journal, June 23, 2023.
7. The Wall Street Journal, June 23, 2023.
8. The Wall Street Journal, June 23, 2023.
9. National Association of Home Builders, June 19, 2023
10. Reuters, June 20, 2023.
11. CNBC, June 22, 2023.
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility. Please consult your financial professional for additional information.
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. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG is not affiliated with the named representative, financial professional, Registered Investment Advisor, Broker-Dealer, nor state- or SEC-registered investment advisory firm. 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. Copyright 2023 FMG Suite.
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