Lower inflation may continue to support stocks in the months ahead as the Federal Reserve (Fed) winds down its interest rate hiking campaign. The Fed’s preferred inflation measure (the core PCE deflator) dropped a half point in June to 4.1% and could potentially reach the mid-3s by year-end — not far from the central bank’s 2% target. Lower inflation may also be good news for bonds by enabling the Fed to cut interest rates in 2024 as most expect.
Economic data supports higher stock prices as the odds that the U.S. economy achieves a soft landing have increased. The U.S. economy grew 2.4% in the second quarter, a solid pace for a typical economic expansion these days. The job market remains healthy with near record-low unemployment. A resilient economy has fueled better profits for corporate America than most expected, setting up a likely end to the ongoing earnings recession in the current quarter.
We’re in the best year for stocks within the four-year presidential cycle. In other words, more gains, and record highs, in the coming year are reasonable to expect.
Today’s stock market is pricing in an increasingly optimistic outlook for economic growth and corporate profits, but the economy still faces challenges that will likely lead to slower growth in the second half — and perhaps even a mild economic contraction.
Finally, for those worried that gains in the broad market have been driven by only a handful of stocks, stock market leadership has started to broaden out. We believe that’s a necessary condition for the next leg of this bull market. Small cap stocks fared better than large caps in July and the average stock in the S&P 500 rose more than the index over the past two months.
If you are unsure whether your overall allocation is optimal in light of your time horizon and the current market environment, we encourage you to reach out to us for assistance.
As always, we value your trust and look forward to speaking with you again soon.
Sincerely,
Bryan Foronjy, CFP®
Founder and Principal Wealth Manager
Foronjy Financial
CA Insurance Lic. # 0F84170
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Bryan Foronjy is a registered representative with, and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Mariner Independent Advisor Network, a registered investment advisor. Mariner Independent Advisor Network and Foronjy Financial are separate entities from LPL Financial.
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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.
All data is provided as of August 1, 2023.
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All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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