Setting The Stage For The 2nd Half of 2023

A follow up act will prove difficult for the stock market

Author

Mark Roussin
July 03, 2023

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Market Talk ⏪

We always begin with 5 important topics from the week prior and/or related to the week ahead for investors to be mindful of.

  1. Markets conclude what has been a strong start through the first half of 2023. The last day of the first half of 2023, ended similar to many other days through the first six months of 2023, UP. The S&P 500 finished the first half up nearly 16%, but it was the technology heavy Nasdaq that led the charge, up more than 30% through the first half of 2023. The rally by the Nasdaq was the best first half rally in four decades. These types of gains and these high of valuations make it very difficult for the second half to even come close to the first, but crazier things have happened.

  2. Bond market still suggesting a recession is likely. Although the stock market has surged higher to start 2023, the bond market is signaling something not so rosy is on the horizon. After all, the bond market is much larger than the stock market, and how bonds act has usually predicated how the stock market will do. The 2-year US treasury inverted with the 10-year treasury back in March of 2022 and is still inverted to this day by a wide margin with the 2-year yield at 4.9% and the 10-year at 3.8%. Using data from the past five decades, this signals a recession by or in 2024.

  3. Student Loan forgiveness struck down by Supreme Court. At the conclusion of last week, the Supreme Court revealed their decision on the fact that Student Loan Forgiveness was deemed unconstitutional. As such, 40 million student loan borrowers are expected to once again begin making regular payments starting in the fall. The current administration continues to say they will try a different path to deliver student loan forgiveness, but in the meantime, borrowers will be required to make payments, which will certainly impact consumer spending.

  4. First Half leaders ready to take a breather. As I explained in point #1 today, the market has had an incredible start to the year, led primarily by mega cap technology companies. When you look at the S&P 500, the top 10 positions account for more than 80% of the TOTAL gains for the index as a whole. The magnificent seven, as they now call them, which is Apple, Amazon, Microsoft, Meta, Alphabet, Nvidia, and Tesla, have each increased by an average of 86%, with Nvidia leading the charge up nearly 200% so far on the year. The remainder of the index was largely left behind, underperforming the index as a whole. As such, at current high valuations, it would not be surprising to see other asset classes make a move while big tech takes a breather. As you will see below, the Russell 2000 was up only 7%, underperforming the S&P 500 by a wide margin. The same goes for the equal weight S&P 500 ETF, which increased less than 10% through the first half. To summarize it all, the rally has largely been one-sided for much of 2023.

  5. The China recovery plan continues to falter. For those stocks with exposure to China, like Starbucks and Qualcomm, a lot of initial growth to start the year was focused on China nixing its pandemic restriction policies which would lead to a return of growth for that region. It has been anything since and some companies are certainly starting to get re-rated. After all, shares of SBUX, which China is their second largest region behind the US, saw its shares surge over $115 in late April on hopes of a return to growth for China. That has been anything but the case and shares now trade below $100. In the latest news out of the region, China saw their factory activity growth slow yet again in June based on a private-sector survey that was released on Monday. Business confidence in the region has hit an eight-month low as the country, which is the second largest economy in the world, continues to struggle to find stable footing.

Deep Dive 📰

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Premium subscribers last week received a DEEP DIVE on shares of Visa (V) and Apple (AAPL). Up next for premium subs is the Monthly Dividend Portfolio Update for the month of June.

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US Markets 🇺🇸

Here is a performance summary for US Equities:

Here is a look at US Treasuries:

The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.

The Fear and Greed Index moved back into EXTREME GREED territory after spending a week back in GREED, but nonetheless it is something to keep in mind regarding the near term headwinds the market could be facing. Currently, the index has a reading of 80, which is in line with the prior week reading of 74.

Earnings on Deck 💰

Q2 just ended, plus we have a shortened week this week, so things are very quiet on the earnings front. Expect them to ramp back up in a couple weeks as we kickoff Q2 earnings season.

Dividend News 📝

Here are some notable analyst upgrade/downgrades from the previous week:

  • UBS upgrades Moderna to buy from neutral

  • BMO upgrades Sherwin-Williams to outperform from market perform

  • Goldman Sachs upgrades Kellogg to buy from neutral

  • JPMorgan upgrades Coterra to overweight from neutral

  • Canaccord initiates Deere as buy

  • Deutsche Bank downgrades Walgreens to hold from buy

  • Bank of America upgrades Old Dominion and XPO to buy from neutral

  • Piper Sandler initiates TJX Companies as overweight

  • Credit Suisse downgrades Pfizer to neutral from outperform

  • Citi initiates Apple as buy

  • Stephens initiates Occidental Petroleum as overweight

Economic Data This Week 📆

Monday (Half-Day)

  • S&P Global manufacturing PMI (June)

  • Construction spending (May)

  • ISM Manufacturing PMI (June)

Tuesday (4th of July)

  • Markets CLOSED

Wednesday

  • Durable goods orders (May)

  • Factory orders (May)

  • FOMC minutes

Thursday

  • ADP private payrolls (June)

  • Initial jobless claims (week ended July 1)

  • S&P Global services PMI (June)

  • ISM services PMI (June) 

Friday

  • Nonfarm payrolls (June)

Other Resources 📺

If you have not done so yet, check out my growing YouTube community where I publish weekly videos focused on building wealth through investing.

Here is the latest video I released: 5 Dividend Stocks To BUY In The Month of July:

Here is another video I put out last week: 4 Dividend Stocks Poised To Benefit From AI:

Here are a few others of my latest videos:

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Happy Investing!

Mark

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