Market In a Snap! June 12th – June 16th, 2023

By: Dave Chenet, CFA, CAIA

 CloseWeekly returnYTD return
S&P 5004,409.592.58%14.85%
Nasdaq Composite13,689.573.25%30.79%
Russell 2,0001,875.470.56%6.72%
Crude Oil71.442.82%-10.99%
US Treasury 10yr Yield3.76%  

Source: YCharts, Yahoo! Finance, WSJ

A New Bull Market for Stocks?

The S&P 500 closed the week at a level more than 20% above the lows of October ’22, meeting one definition of a “bull market.”  Bull markets are historically favorable for equities and credit and coincide with a healthy environment for corporations to grow revenues and profits.  Before celebrating the return of the bull, however, prudent investors may want to closely examine some common bull market economic indicators that could either confirm or reject the bull market thesis, including:

  • Accelerating economic growth: Today’s leading indicators point to slowing growth, increasing jobless claims, restrained spending & borrowing and poor consumer confidence.
  • Accelerating corporate profits: long-term gains in stocks are driven by corporate profits; S&P 500 earnings/share peaked in early 2022 and stand 13% below Q1 ’22 levels.
  • A healthy US consumer: The US consumer contributes approximately 68% to US GDP growth.  Consumer spending may have peaked as the post-covid spending, which was encouraged by excess savings and government stimulus has waned.  Inflation-adjusted retail spending is 4% below its 2022 levels and tighter credit conditions and higher interest rates may keep spending constrained.
  • Broad-based stock gains:  Small-caps and cyclicals typically lead the way coming out of a bear market as they tend to more sensitive to economic changes.  To this point, small-caps & cyclicals have yet to take the reigns from their large-cap technology counterparts.

Despite the strong rally from October lows, the market is still 8% below the January ’22 peak.  The history of bear markets is littered with convincing rallies that brought bulls out of hibernation only to see then see markets sputter.  Time will tell if this is a head fake or the start of a new bull market. 

What We’re Reading:

Bloomberg: AI Proves Mightier Than the Fed for Stocks Divorced From Economy

WSJ: China Cuts Rates to Prop Up Flagging Recovery

Chart of the Week:

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