More New Highs

July 31, 2023

July is traditionally one of the better months for stock market performance and it continued that trend this year.  The 30 stock Dow Industrial average had been lagging the overall market this year but made up some of that ground in July.  A Dow rally began July 10^th ran for 13 consecutive days, something we have not seen in 36 years.  The rally fell one day short of the all-time record that was set in 1897!  Market participants have been encouraged by declining inflation numbers and economic numbers continue to suggest a recession is not in site.  The Federal Reserve continued to fight inflation by raising interest rates again in July, this time to the highest level in 22 years, but the market shrugged it off.  Even rapidly rising oil prices couldn’t dissuade buyers from driving stock prices to a 16-month high, a mere 5% below the all-time high.  At the end of the month the S&P 500 had gained another 3.1% and is now 19.5% higher for the year.  Oil prices were nearly 16% higher in July which was their biggest monthly gain since January 2022 and gold ended the month up 1.9%.

The month began with a half day of trading ahead of the July 4 holiday.  During the week we learned the Federal Reserve believes more interest rate hikes will be necessary and that a fewer than expected 209,000 new jobs were created in June.  The holiday shortened week featured quiet trading with the S&P 500 closing the week with a loss of 1.1%.  The headlines during the second week were both CPI and PPI coming in below expectations as inflation dropped to a 2-year low.  We began to see the first Q2 earnings reports and they were generally better than expected, sending the S&P 500 to a 2.4% gain on the week. Q2 earnings reports dominated the action during the 3^rd week, and they were mostly better than had been feared, sending the S&P 500 higher 4 out of 5 days for a gain of .7%.  During the last full week, we saw earnings reports from 30% of the companies in the S&P 500 and those reports pushed the S&P 500 to a new 52-week high despite higher interest rates from the Federal Reserve.  At week’s end the Personal Consumption Expenditure report, the Federal Reserve’s favorite inflation gauge, was up just .2% which was the lowest in 2 years and that helped the S&P 500 gain another 1%.

August is historically an average month for stock market performance, but we wonder how much is left with the S&P 500 already nearly 20% higher for the year.  The market momentum is strong, but valuations continue to be stretched.  The historic price to earnings ratio for the S&P 500 is 16 and the index is currently at 26, 65% above historic norms.  Valuations do matter and that discrepancy can only be corrected by a decline in stock prices or a rapid rise in earnings, not something we expect in a rising interest rate environment.  Many market participants are seeing an economy that is going to avoid recession and be driven by artificial intelligence.  Interest rates are likely to move higher, but the “Goldilocks” scenario is the Federal Reserve is close to being done with their interest rate hikes and may soon begin lowering rates, something we don’t see in the short term.  We continue to participate in the market rally but have an inverse position in place and higher cash positions than normal.

If you know someone who would be interested in learning more about Greenberg Financial Group, please contact us at 520-544-4909, or visit our website at www.greenbergfinancial.com. As always, the key to successful investing is to have a portfolio that is consistent with your investment objectives and risk tolerance. We invite you to listen to our weekly Money Matters radio show which airs every Sunday Morning from 8:00 AM to 10:00 AM on KNST AM 790.  You can also listen to us on iHeart radio, follow us on Twitter @gbergfinancial or on Facebook under Greenberg Financial Group.  Previous radio shows are available by going to www.iheart.com or using the iHeart app and typing Money Matters with Dean Greenberg.