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17 July

A First Half Comeback

By in Market Update

Quick Take: Stocks rebounded out of a bear market, driven by strength in technology stocks. US government bonds also racked up positive returns.

Stocks surged out of a bear market during the first half of the year, as the tech-laden Nasdaq recorded its best first half on record, and the S&P reached its highest levels since April 2022. In June alone, the S&P 500 gained 6.5% for its fourth consecutive positive month.[1]

Markets have so far powered past challenges like the regional bank crisis, debt ceiling brinkmanship, and rising interest rates without worst-case scenarios materializing.[2] The biggest contributors to market strength have been a handful of tech companies, including Apple, which hit a new record high as the first publicly traded company to be valued above $3 trillion.[3] However, in the last month, market breadth started to improve and a majority of S&P 500 stocks are now up on the year.[4]


Source: https://www.bloomberg.com/news/articles/2023-06-29/stock-market-today-dow-s-p-live-updates

Bonds rallied in the first quarter (yields fell) following investor concerns over the impact of banking collapses, but yields rose (prices fell) as the economy and markets weathered the turbulence.[5] In June, US Treasury bond yields hit their highest levels in over three months on the back of strong economic data, raising expectations the Federal Reserve (“Fed”) may need to raise interest rates further.[6] US government bonds managed to eke out positive returns for the year after a brutal 2022.[7] Even if rates rise further, higher income from elevated interest rates provides some cushion for investors.


Pause in Rate Hikes

Earlier in June, the Fed paused its rate hike campaign by holding interest rates steady after 10 consecutive increases in 15 months.[8] However, officials signaled they are prepared to raise rates in July and many analysts expect at least two more quarter-point interest rate hikes before the end of the year.[9]

The situation is still data-dependent, and the Fed is not tied to a specific interest rate level — the commitment remains to bringing inflation down to 2%. Although inflation has moderated, it remains well above target, and Fed chair Jerome Powell notes that it may take years to come down.[10]

This doesn’t bode well for lower interest rates any time soon. Even Atlanta Fed President Raphael Bostic, who is not in favor of further increases, doesn’t see any rate cuts coming either this year or in 2024.[11] While last year any talk of persistently high interest rates may have sent the bulls running, markets are finding reassurance that inflation is diminishing, and we are at or near peak interest rates.


Economy Outperforms

Perhaps most importantly, the much-anticipated recession has so far remained out of sight, giving markets hope. [12]




Recent economic data has showed that growth is holding up: [13]

– New home sales soared 12.2% (vs forecast -1.2%).

– Consumer confidence measured by the Conference Board rose to 109.7, the highest since early 2022 (vs forecast 104).

– The final revision to US 1st quarter GDP showed the economy grew at a 2% annualized pace, well above the 1.3% previously reported[14]

– Jobs continue to be added at a pace well above its pre-pandemic average.[15]

– Banks passed the annual Fed stress test that measured resilience under a severe recessionary condition.[16]


Although there are signs of a slow-moving credit crunch, as Dr. Ed Yardeni, a former economist with the Federal Reserve notes, the permabears have to postpone the imminent recession again – the “rolling recession” has turned into a “rolling expansion.”[17] [18]

Why has the economy held up so well? Part of the answer might arrive from the fact that the government keeps spending. Intuitively, the federal deficit as a percentage of GDP typically moves in tandem with the unemployment rate. When unemployment is high, tax receipts fall and government spending increases; when unemployment is low, we might expect spending to recede.

Source: https://www.bloomberg.com/news/newsletters/2023-06-30/it-was-a-week-for-feeling-good-about-the-us-economy#xj4y7vzkg


Perhaps unexpectedly, unemployment and federal deficit spending has diverged. US deficit spending on the back of public investments in infrastructure, the Chips Act, etc., is high relative to the strength of the economy.[19] The current deficit is comparable to levels of spending seen in 2011 when unemployment was around 8%.[20] Even as monetary policy has tightened, fiscal policy has stepped in to provide the economy with broad support.


What’s Next?

The S&P’s 15.9% increase in 2023 has surprised many analysts. The markets embraced leading tech stocks, inflation seemingly peaked, and any major banking and debt ceiling crisis were avoided.[21] We will continue to monitor upcoming earnings, and inflation-related data, and any credit or liquidity issues stemming from higher interest rates.[22] Embracing a balanced perspective with a strong emphasis on diversification prepares your portfolio for the inherent and unpredictable fluctuations of the markets.

As always, we are happy to help you with any questions about the markets, economy, and your customized investment portfolio. Please feel free to reach out to with any questions or to schedule a simple call about your personal goals and objectives – especially if there have been any recent life changes. We hope you’re enjoying a relaxing and fruitful summer with family and friends.


Your Friends at JSF



The information expressed herein are those of JSF Financial, LLC, it does not necessarily reflect the views of NewEdge Securities, Inc. Neither JSF Financial LLC nor NewEdge Securities, Inc. gives tax or legal advice. All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed constitutes a solicitation or recommendation for the purchase, sale or holding of any security. Investing involves risk, including possible loss of principal. Indexes are unmanaged and cannot be invested in directly.

Historical data shown represents past performance and does not guarantee comparable future results. The information and statistical data contained herein were obtained from sources believed to be reliable but in no way are guaranteed by JSF Financial, LLC or NewEdge Securities, Inc. as to accuracy or completeness. The information provided is not intended to be a complete analysis of every material fact respecting any strategy. The examples presented do not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy. Diversification does not ensure a profit or guarantee against loss. Carefully consider the investment objectives, risks, charges and expenses of the trades referenced in this material before investing.

Asset Allocation and Diversification do not guarantee a profit or protect against a loss.

The Bloomberg Barclays U.S. Aggregate Bond Index measures the investment-grade U.S. dollar-denominated, fixed-rate taxable bond market and includes Treasury securities, government-related and corporate securities, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

The S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market.

The Nasdaq Composite is a market-capitalization-weighted index consisting of all Nasdaq Stock Exchange listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds or deben­ture securities.

Treasury Bond- is a U.S. government debt security with a fixed interest rate and maturity between two and 10 years.

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. GDP is the most commonly used measure of economic activity.

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[1] Stock market today: Live updates (cnbc.com), 6.30.23

[2] https://www.wsj.com/articles/markets-monster-2023-rally-defied-all-expectations-705bc313

[3] Apple’s Market Cap Reaches $3 Trillion (wsj.com)

[4] A Majority of S&P 500 Stocks Are up This Year as Market Breadth Improves (wsj.com)

[5] https://www.wsj.com/articles/treasury-yields-resume-climb-as-investors-bet-on-growth-5d157f69

[6] US bond yields rise as ‘scorcher’ data points to strong economy | Financial Times (ft.com)

[7] Analysis: US bond investors eked out positive returns, see better second half year | Reuters

[8] https://news.yahoo.com/federal-paused-interest-rate-hikes-180025538.html

[9] Fed Holds Rates Steady but Expects More Increases – WSJ

[10] PCE inflation May 2023: Key Fed measure shows prices rose just 0.3% in May (cnbc.com)

[11] PCE inflation May 2023: Key Fed measure shows prices rose just 0.3% in May (cnbc.com)

[12] Markets’ Monster 2023 Rally Defied All Expectations – WSJ

[13]Recession 2023 Might Be Canceled, But Economists Won’t Admit It – Bloomberg  )

[14] US bond yields rise as ‘scorcher’ data points to strong economy | Financial Times (ft.com)

[15] https://www.wsj.com/articles/markets-monster-2023-rally-defied-all-expectations-705bc313

[16] Fed stress test 2023: Biggest banks weathered severe recession (cnbc.com)

[17] The Slow-Moving Credit Crunch Is Still Unfolding – Bloomberg

[18] It Was a Week for Feeling Good About the US Economy – Bloomberg

[19] It Was a Week for Feeling Good About the US Economy – Bloomberg

[20] It Was a Week for Feeling Good About the US Economy – Bloomberg

[21] Stock market today: Live updates (cnbc.com) 6.30.23

[22] Six questions facing US stock investors as 2023’s second half nears | Reuters

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