The first half of 2023 is in the books and the market closed out the month of June on a high note. During June the market made some important progress on several fronts.
We reported in early March that the S&P 500 Index met with strong resistance at 4,200 points as it worked to recover the 2022 losses. During March, April and May the resistance seemed to be more stubborn each month, and we frequently reported the importance of breaking through that price level if this rally is to be sustainable. A range bound market is frustrating and challenging to manage, but we know that eventually it will push above the resistance or fall back to lower prices.
On June 12 the S&P pushed above 4,300 points to close the day at 4,338. That level was last seen in August of 2022 and is referred to as the August high. Often lines that form firm resistance will become support when the market pushes higher. For the last half of June the S&P 500 Index traded above 4,300 points and ended strong at 4,450 on June 30. We will be watching to see if the S&P 500 can hold support at 4,300 points and trade higher for the remainder of the year.
Small cap stocks tracked by the Russell 2000 Index showed significant improvement during the month of June. Last month we expressed concern that the Russell 2000 was flat for the year.
Small caps led the rally in January but fell back and lost ground over the next 4 months. Any healthy bull market needs strong leadership from the small cap sector and we are encouraged to see this progress in June.
In the first five months of the year, the stock market rally was confined to a small number of growth stocks in technology and communications. These stocks were the biggest losers by far in 2022 and they came roaring back early this year. Even with significant gains, most growth stocks are trading well below their 52 week highs. Only a handful of tech and communication stocks are responsible for gains in the first half of 2023 in the Nasdaq and S&P 500 Index which they dominate.
The third area of improvement in June is increased breadth in the market. Demand and higher prices are moving beyond just tech and communications stock into the industrial and discretionary sectors. Energy appears to be in position for another potential break out to higher prices. For the stock market to hold its recent gains and make more progress, increased participation across more market sectors is critical.
In July investors are keeping an eye on two announcements – the June CPI number and any change in interest rates at the Federal Reserve meeting this month. The June CPI number was announced at 8:30 this morning, July 12. Inflation continued to cool down with the lowest increase since March of 2021. On this news the major indexes rose today showing that investors are optimistic the Federal Reserve may keep a pause on any rate increase at the end of the month.
Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our views at the time of this writing, and it is subject to change. It is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us.