Mid-Year Update

The S&P 500 index of American stocks ended the first half of the year higher by 16.9%. For many, the recovery since the start of the year (actually since last October) brings renewed optimism about long-term stock investing. It’s an example of the resiliency of stocks as a time-tested investment vehicle.

The stock index has apparently adjusted to the higher interest rate environment that drug it down last year. The S&P 500 is back to about the same as it was when the Federal Reserve rose rates from the 0.00-0.25% range in March 2022. The index on March 17, 2022 was 4,412, and on July 7, 2023 it was 4,399.

These positive developments beg the question: Is the bear market actually over, or are we seeing another “bear market rally” that will eventually lose steam?

What bullish factors support the rally?

Despite all the worrying, it doesn’t look like a recession is here yet. The labor market is still strong. The housing sector is remaining strong despite higher interest rates. More positive signs of a strong economy should support a rally.

Inflation seems to have peaked. The Fed stopped raising rates at each consecutive meeting, opting to take things more slowly. Investors are more likely to stay optimistic if the Fed holds to its plan to limit future rate increases.

We need to not forget the power of “fear of missing out” on the next bull market. No one wants to be on the sidelines when markets move.

What bearish factors could kill the rally?

The current surge has been largely driven by technology stocks. Any negative sentiment about these tech high-flyers is likely to have a disproportionate effect on the overall rally.

We still can’t be certain that a recession won’t hit this year. The economy is still facing headwinds that are likely to impact corporate earnings.

Growth may be hard to come by for U.S. businesses. Since stock prices reflect the value of their underlying companies, earnings misses or negative surprises could stifle sentiment.

In our view, here’s the bottom line. For the rally to keep going, investors will not only have to stay positive about technology stocks but also stay confident about the overall state of the economy.

But here’s the real bottom line of this message. Personalized financial planning means managing investments according to your unique goals, not the market in a vacuum. The market’s next move will always be hard to predict. However, we can bypass some of the near-term uncertainty by following a long-range approach that aligns with your objectives.

Let us know if we can be helpful in any way.

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