Market Update for June 2, 2023
It has been a while since I’ve done a post, and I apologize, but we have been very busy monitoring the markets and meeting with clients. Product options in both the conservative and more aggressive areas of the market continue to be robust, as higher market interest rates persist after years of being in the basement. The markets have been worried about Fed rate increases for over a year now, but I think what is happening is a pivot towards being more concerned about recession. Today’s blockbuster job numbers continue to defy generally pessimistic predictions by economists - as a country we added 339,000 jobs in May, and that was the 14th straight month where job growth surpassed economist’s aggregate estimates! It is a very real possibility that the Fed has delivered us “just right” porridge, where the “too cold” version of porridge would be not enough rate hikes yielding unchecked inflation, and the “too hot” version of porridge would be interest rate hikes creating a recession.
Stocks are set to close at the highest levels of 2023, generally a good sign of things to come. Bears would note stocks remain only slightly ahead of February 2nd 2023 highs and that the average stock has done far worse than the largest stocks so far this year. In fact, the percentage of stocks outperforming the S&P 500- a broad basket of US Large-cap stocks- is only 24.5%, and should that hold through year-end it would be a record. Further troubling is the fact that only FIVE stocks represent over 25% of the S&P 500 and over 41% of the NASDAQ-100-tracking-ETF-QQQ. Finally, and quite obviously, I would note that all 5 of these top stocks are technology names. In fact, there are only three names in the top-10 of S&P 500 market capitalization that are not tech names: Warren Buffet’s conglomerate Berskshire Hathaway comes in at #6 (Its top holding? Apple); Exxon Mobil is at #9; and United Health is at #10. I wrote about this topic a few months ago (December 2022), but the top-heaviness of the market has gotten even MORE pronounced in the intervening time. And, unlike in 2022, technology and growth stocks have outperformed substantially year-to-date. For a sustainable market rally we can fully believe in, it sure would be nice if it wasn’t just a handful of technology names driving all of the gains.
As I write this the S&P 500 and the QQQ are about 12-13% below their all-time highs, achieved around 18 months ago in both cases. Of course, we could eclipse those highs this summer, next winter, or not at all. The average amount of time it would take to get back to those highs is around 2.5 years, based on work presented by Dr. Claus te Wildt at our October 2022 National Conference, and this assumes we are do not enter a recession. As noted above it is VERY safe to say we are today not in a recession, and this brings to mind the old Paul Samuelson quote: “Economists have correctly predicted nine out of the past five recessions.” Have a great start to the summer, I’ll post again soon.