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The Stock Market's Resilience: A Bullish Bounce Back
The stock market, often an indicator of future economic health, has defied expectations by staging a healthy comeback. After a tumultuous period of volatility pushing investor sentiment to a near decade low, most of the major equity indexes have reflated to their all-time highs and growth expectations have resurfaced. To date this is the 11th best start to the year for the S&P 500
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The Big 8
This surge in equity returns can be largely attributed to the dominance of the "Big 8" tech giants - Apple, Microsoft, Google, Amazon, Nvidia, Tesla, Facebook, and Netflix. These tech behemoths have witnessed exceptional growth, with each of them posting gains of at least 40% for the year. Notably, Nvidia, Apple, and Microsoft have scaled new all-time highs, further adding to the market's upward momentum.
The good news is that more recently, we’ve seen “the rest” of the market (small caps, mid-caps, the rest of the S&P 500) make a comeback as well, which could be a sign of strength ahead for markets.
Interest Rates Hold Steady:
On the bond side of things, we continue to see higher interest rates. Last month, the Fed moved the Fed Funds rate up to 5.25-5.50%, which is its highest level in more than 22 years. Central banks' cautious approach in managing inflationary pressures and their commitment to supporting a sustainable recovery have led to this conservative stance.
For borrowers, higher interest rates can mean increased costs for mortgages, auto loans, student loans and other forms of borrowing. You are already starting to see cracks in the real estate market with mortgage rates up over 7%. Student loan borrowers are also being surprised by their new higher rates when loan repayments begin later this year. All of these will have real life economic impacts, but it doesn’t necessarily mean markets will crash. Much of the pain higher interest rates will cause has already been priced into the market and is known. On the flip side, higher interest rates present an opportunity for savers and bond investors to earn more from their savings accounts and fixed-income investments. This is indeed a good thing!
Looking ahead, historically, when interest rates remain higher for longer, the economy slows, and the reduction cycle starts again. The fed cuts short-term rates, they increase the money supply, and as a result the economy strengthens, and assets reflate. The hard part is predicting when this will occur. We may very well be seeing equities strengthen today, because this rate cut will happen sooner than we think…
Positioning:
What all this means to you is that we continue to remain in an overweight position to domestic equities, short-term fixed income, and municipal bonds. Underweight international equity and longer duration bonds. If markets continue this run throughout the rest of the year, we will look to rebalance back to a neutral position. Essentially taking some profits and getting a little more conservative.
As always, thanks for listening. Feel free to contact us with any questions or concerns you may have or just to chat and talk markets.
Frank
Retirement Capital Advisors
800 Battery Ave SE The Battery, Suite 100 Atlanta, GA 30339
Office- 412-722-3795
Securities and Advisory Services offered through Commonwealth Financial Network®, member FINRA/ SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network
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