Wall Street’s major averages closed out a strong first half of the year on an upbeat note. Moreover, the Federal Reserve’s favorite inflation gauge – the core personal consumption expenditures index – moderated in May on both a month-to-month and year-to-year basis, easing some of the rate concerns that have weighed on markets recently. Notably, the S&P 500, Dow Jones and Nasdaq Composite indexes all notched gains for the week, month, quarter and first half of the year.
The recession narrative appears to be fading going into 2H:23 as inflation continues to decline and consumer spending remains robust. But, one cannot ignore the inverted yield curve – the most accurate predictor of a recession. History would suggest that recession, for now, is delayed but not defeated. But, does Wall Street care?
Future Wealth’s View
The labor market continues to remain strong as layoffs retreat and economic growth continues to be strong despite higher interest rates. Earlier this week, Fed Chair Powell noted that we are seeing stronger than expected growth, tighter than expected labor market and higher than expected inflation. This flies in the face of Economics 101 but Wall Street appears to be ignoring economic signals and looking ahead to 2024. Things are also starting to defrost for the IPO market after being frozen for much of the past 18 months. Faced with rising interest rates, investors dumped high flying growth companies by turning to more profitable alternatives, but as the rotation turns the corner, sentiment is now boiling over to public listings.
We are now entering a period of cautious optimism. Economic releases covering construction spending, factory orders, and initial jobless claims will be released early next week before the June jobs report lands on the laps of investors on July 7. These reports will determine the direction for the market for 2H:23.