Up Up and Away

July 3, 2023

Despite rising interest rates and a slowing economy, the S&P 500 was up 8.9% at the end of May and that momentum continued into June.  At the end of May, the S&P 500 was at 4180 and we thought the positive momentum could carry the market modestly higher before hitting resistance at the February high of around 4200.  We began the month with a deal to temporarily eliminate the debt ceiling and that news ignited a buying panic that took the S&P 500 well beyond levels we expected to see in June.  Investors are seeing a Goldilocks scenario where interest rates are about done going higher, Powell has executed a soft landing that will avoid recession and artificial intelligence will drive corporate profits.  At the end of June, the S&P 500 had added another 6.5% and is now 15.9% higher for the year.  The rally has been driven primarily by a few tech stocks, but the more representative equal weighted S&P 500 did catch up a bit in June with a 7.2% rally, but it still trails the S&P 500 this year by about 10% and the value ETFs that are the core of many conservative accounts are still in negative territory for the year! Oil had a volatile month and ended with a gain of 3.7% but is still 10.9% lower for the year.  Interest rates moved higher in June which sent gold down 2.6%.

The month began on a Thursday with news the House had voted to temporarily eliminate the debt ceiling and the Senate did the same thing on day 2 which made that day the best this year.  As a result, 2 trading days into the month the S&P 500 had gained 2.5%.  The first full week of June was quieter, but excitement about artificial intelligence drove tech stocks to a new 52-week high.  The S&P 500 did hit 4300 for the first time since August, but the S&P 500 ended the week with a gain of just .3%.  During the second full week we learned the Federal Reserve left interest rates unchanged, but they did indicate another hike or two are coming before year end.  The market was expecting interest rates to decrease rather than increase, but investors shrugged off the news with a “they are almost done”.  Retail sales were better than expected and the Consumer Price Index dropped to a 2-year low.  The S&P 500 closed the week with a gain of 2.6%. The 3^rd full week was shortened by the 2^nd annual Juneteenth holiday and featured Congressional testimony from Fed Chief Powell.  He reiterated his belief that interest rates need to go higher and that sent the S&P 500 down 1.4%, its only losing week for the month.  The final week was a typical late June week with many market participants on vacation and volume was light.  However, the rally in tech stocks continued sending the S&P 500 to the highest level since last April.

July has historically been the best month of the year for the market and with the momentum from June one would expect the month to be positive.  The only “fly in the ointment” would be valuations, which are currently about 60% above historic norms.  At some point valuations will matter so either earnings need to increase substantially, or stocks need to decrease.  In the slowing economy that Fed Chief Powell is orchestrating it is hard to imagine corporate earnings increasing rapidly, but in a historically strong period, with strong momentum, it is also difficult to imagine major selling.   We have been using the rally to reduce some of the highflyers and add to stocks that have not participated.  We have a higher-than-normal money market fund position, but with rates around 5% we aren’t too concerned about “missing out”.  As we move through July, we will continue to be aware of the approaching August-September period which is traditionally one of the worst times of the year for the market.  We have been more conservative than necessary over the past couple of months, but still have strong market participation.

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.