This week saw the markets react to Federal Reserve Chairman Jerome Powell’s testimony in which he signaled the interest rates were likely in the coming weeks. The NASDAQ Dow Jones and S&P 500 all absorbed losses. The NASDAQ saw its eight-week winning streak end (the longest since 2019) while the S&P 500 ended it’s five-week rally (the longest since November 2021). All eleven sectors of the S&P 500 (see our Market Update for the Week of June 5th, 2023, for a list of these sectors) lost ground this week with utilities taking the biggest hit.
Although the Dow was down 1.67% this week at 33,727, our subscribers were prepared for this downturn. The S&P 500 lost 1.39%, closing the week at 4,348. The NASDAQ ended the week at 13,492 down 1.44% by week’s end. As announced previously, the chances of another Fed rate hike was not expected by us at the June meeting however we expected (and still do) that a rate hike is likely in July. Expect a ¼% hike at that time. It now seems probable that two more (at least) interest rate increases are in the cards this year, however, don’t be totally surprised if there are one or more added to those. The stated goal of the Federal Reserve is to lower the inflation rate to 2%, however the current rate of 4% is staying stubborn.
The major markets have been overbought for a few weeks now and there is no surprise that the retreat we saw this week occurred. The markets give back when a tremendous run has happened and that is where we are right now. The leading economic index dropped by 0.7% in the month of May which is the 14th month in a row that this has occurred. This index, published by the nonprofit Conference Board, is a gauge comprised of 10 indicators which show if the economy is getting better or getting worse. Usually this is an indicator of a recession on the horizon and coupled with the continued Inverted Yield Curve is cause for observation as well as future concern in our opinion. The current rates on Treasuries are: 2-year – 4.74%, 5-year – 3.99%, 10-year – 3.73.
Currently the national average for 30-year mortgages stands at 6.69%, however by shopping around a better rate should be found.
Our subscribers know that when we observe market trends, we look for the performance of Small=Cap stocks. This week this market lost money, down 2.89%. This is another indicator that bears watching however at the moment we believe this pullback is profit taking as well as the market trying to catch it’s breath.
Investors are still feeling confident as indicated by the Cboe Volatility Index (VIX). When this index reaches the number 30, there are concerns. When it hits 40 there is usually a panic. This week the VIX stands at a comfortable 13.44 showing a great deal of faith in the near future.
The coming week should be a bit more positive but as always, we will continue to stay with our strategies. Our subscribers are enjoying a 5.2% return since our inaugural publication on August 21st, 2022.
Please watch for our Mid-week Market Alerts should there be any.
* As is the case with any investment, use your discretion and judgement before purchasing and/or transferring. Diversification is always prudent; therefore, our suggestion is using a portion of your portfolio and not the total in any one fund or subaccount. A portion should remain in Cash (Money Markets)
