Mary Ann Drucker presents our August video market update and shares what FSA is doing to respond.
Stock Market Update Transcript
Hello, I’m Mary Anne Drucker here with our video market update for August 2023. The second half of the year was off to a good start in July. The Dow S&P 500 and NASDAQ all made new 52-week highs during the month. Though NASDAQ has been the clear winner by far so far this year, the Dow did manage to play some catch up, helped by value stocks in the energy, financial, and transportation sectors. Foreign equities and high-yield corporate bonds also had a positive showing for the month of July, though their momentum began to slow around mid-month. The broader bond market, however, was negative for the month as it continues to struggle against the headwinds of Fed tightening.
With the first half of the year behind us, it’s natural to look ahead to what the second half might bring, and there are reasons to be optimistic that equities will continue their positive momentum into the end of the year. One, inflation data reports have continued to be better than expected, prompting some to believe that the Fed might be near the end of its rate hike cycle. Two, second quarter GDP came in better than expected, pointing to a resilient economy. Three, equities have been bolstered by positive earnings and revenue surprises, especially in the technology sector. And four, participation in the equity rally has broadened in July to include such areas as small cap stocks and value stocks, and this is generally a sign of a healthier market.
On the other hand, there are also reasons to be cautious. The equity market’s performance in the first half of the year was driven primarily by AI-related technology stocks; AI, of course, referring to artificial intelligence. This chart shows that if those AI-related stocks were removed from S&P 500 returns, the S&P would actually be flat/down so far this year. This raises concerns that if these AI-related stocks were to fall and stumble, they might trip the overall market. Number two, the S&P 500 rally off of the low it reached in October of last year is nearing an important level. Over the past nine months, the S&P 500 has risen over 30%, a stunning number in a short period of time. Investors in the too-far-too-fast camp would argue that after such an impressive run the equity market is due for a pullback. Given the rally as of the end of July, the S&P 500 was less than 5% away from the high it reached in January of last year.
FSA is closely monitoring this level. That high will either act as a strong resistance through which stocks will have to break and the rally could fail, or stocks could power through it and the rally will continue.
In closing, with the strategies more fully invested to their equity allocations as of the end of June, our trading in July centered more around fixed income. We added high yield corporate bonds to the Conservative Growth and Income and Growth strategies, and that currently represents the only bond position in most Conservative Growth accounts. With many areas of the fixed income market struggling, FSA is content to hold a little bit extra cash in a money market that’s yielding 5%.
Well, that’s it for this video market update. If you have any questions or comments, please don’t hesitate to reach out to us. Until next time, thank you for watching.
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