Navigating Market Uncertainties


We believe:

  • Economic momentum has carried through the first half of the year.
  • Several economic indicators urge caution, but the economy continues to defy naysayers. Growth could moderate in the second half.
  • We see further upside for the markets, and we are increasing our year-end S&P 500 target to 4500.
  • There is early evidence of the market starting to broaden out after record concentration.
  • Earnings revisions have been higher for seven straight months.
  • Inflation is set to continue moderating. The latest Producer Price Index (PPI) and Consumer Price Index (CPI) readings are 1.4% and 4.0%, respectively, year over year.
  • The Federal Reserve is in the late innings of rate hikes after a pause in June. The market is pricing in one more rate hike.

Markets Remain Resilient

It’s been an interesting first half of the year. Markets performed very well in the face of continued Fed tightening, calls for an imminent recession, a regional banking crisis, debt ceiling debate, and drama around an 11th-hour deal to avoid a default on U.S. debt.

Through it all, the economy and markets have been surprised by the upside. In stark contrast to last year, stocks and bonds are both posting gains. Since the bear market lows on October 12th, the S&P 500 is up 25.2% on a total return basis. Stock performance has been concentrated in mega-cap growth companies, but we are starting to see the market’s participation broaden. As shown in Figure 1 below, the year to date through June 15th, the S&P 500 is up 16.19%, small-caps are up 8.01%, and international stocks are up 11.28%. The standout so far has been large-cap growth, which is up over 28% year to date and is outperforming large-cap value by almost 2400 basis points.

Figure 1. Perspective