We haven’t seen such a pretty Control Panel for a long time.
Every stock indicator is moving in a bullish direction. The Fear & Greed Index is in Extreme Greed. The trade is risk-on. The Price-to-earnings ratio based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted P/E Ratio (CAPE Ratio), is still at a bubble high and rising.
The USD is falling, which makes U.S. goods and services more competitive internationally. Gold, silver and copper are all rising.
The Treasury yield curve is still strongly inverted (which generally predicts recession). In the past week the longer term Treasury yields have dropped.
The WSJ has been publishing articles predicting a soft landing with receding inflation and no recession.
Many companies are adding to the S&P 500’s rise after Microsoft, Apple, Nvidia and others led the charge this spring. The breadth signals stocks could keep climbing.
The stock market rally is no longer just a big-tech rally.
Just a couple months ago, the seven largest tech companies in the U.S. were responsible for virtually all of the stock market’s 2023 gains. Eye-popping returns from shares of companies like Apple, Microsoft and Nvidia propelled the S&P 500 into a new bull market. The tech behemoths became so dominant that they earned a fresh moniker: the “Magnificent Seven.”
Now, shares of many companies are making the rally broader. More than 140 stocks in the index have hit fresh 52-week highs since the end of May, such as Lowe’s and General Electric. All 11 sectors of the S&P 500 have climbed during that period, pushing the index up more than 17% for the year. Small-cap stocks are rising, too.
It would now take wiping out the gains of the top 50 stocks in the S&P 500 — including Visa, McDonald’s and FedEx — to negate the index’s rally this year… [end quote]
The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2023 is 2.3 percent. This is quite respectable growth and certainly not recessionary.
Bond market options show that the market believes the Fed will raise the fed funds rate to 5.25 - 5.50% at its next meeting in about 10 days. The consensus is that it will remain over 5% for the rest of 2023.
Inflation has been slowing although it is still higher than the Fed’s goal. If PCE inflation follows the CPI trend the market will celebrate since the Fed might hold tight after July’s rate increase.
The METAR for next week is sunny.