“Don’t even look at me!” I dated this girl for a while who had some wild mood swings. In this instance, she was sitting with me in a booth at McDonald’s eating sundaes, happy as can be, and then out of nowhere, she looked at me with crazy eyes and said, “Don’t even look at me!” She was having a mood swing, and so is the stock market.
The weeks-old market rally is being led by a different type of stock than what investors were buying at the beginning of the year.
Since this year’s market low on June 16th, the recovery that we’ve seen is being led by technology companies like Apple, Amazon, and Tesla and consumer discretionary companies, like Nike, Starbucks, and the aforementioned sundae provider McDonald’s.
This is a significant shift from the start of 2022 when investors preferred more defensive stocks, like utilities, health care, and food companies, which are preferred when investors are afraid of the market. This switch in stock preference may suggest investors expect inflation to keep falling and the Federal Reserve to be less aggressive with its interest rate increases.
The fear has been that inflation was raging so badly and that the Fed would have to be so aggressive that they would send us into a recession. The recent inflation data and the jobs report from a few days ago might signal that the economy isn’t slowing as sharply as they were afraid. So maybe things aren’t as terrible as they looked a few months ago.
Is this a bull market or just a bear market rally? I read analyst pointing both ways. The bullish (optimistic) analysts think the economic slowdown will be minimal because of high individual household and corporate cash deposits. The bearish (pessimistic) analysts believe the negative effects of the Fed’s rate hikes are taking a while to affect our economy, and we are just starting to feel their impact.
In the near term, we’re entering the worst two months of the year historically, and I wouldn’t be surprised if the S&P 500 Index pulled back some from the latest rally. But, overall, I’ve been impressed with how well the market has handled so much negative news.
I think the market is bullish, but I see more volatility for the rest of the year while we recover more ground by year-end.
I was lying in bed one day and thought if I married this girl, she might have a mood swing and kill me in my sleep. So I quickly broke up with her. We can’t break up with the market, but we can prepare for its mood swings.
Have a blessed week!
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any individual. All performance referenced is historical & is no guarantee of future results. All indices are unmanaged & can’t be invested into directly.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.