By John Lau
July 31, 2023 – The stock market rallied to new 2023 highs last week on strong earnings and a largely as expected Fed decision before hot economic data saw volatility pick up into the weekend.
Unlike the January-through-May advance in the S&P 500, the rally since June hasn’t been driven primarily by too-bearish sentiment or the impact of just seven stocks on the S&P 500 (while the other 493 did nothing). Instead, the rally since June has been quite logical: Solid growth, falling inflation, and a looming end to Fed rate hikes. I call them the “Three Pillars” of the rally: Soft/No Landing, Disinflation, and Fed Done (or Almost Done) with Rate Hikes, and as long as these pillars stay in place and are confirmed by the economic data, the outlook for stocks may continue to be positive near-term.
As I have said in the past, 2023’s market is all about data; since the end of May, data has been “Goldilocks”, which has powered the S&P 500 to current levels, and I think it is going to take more Goldilocks economic data to sustain this rally and possibly prime for an extension of it in the coming weeks and months. This week will be important because we get three important monthly economic reports: Jobs Report, Institute of Supply Management (ISM) Manufacturing Purchasing Manager Index (PMI), and ISM Services PMI. The S&P 500 needs Goldilocks economic data to hold current levels, because markets are not at all pricing in a chance for a hard landing, nor are they pricing in another rate hike. Data that makes either of those more likely will be negative, given current valuations.
Our focus from a risk management standpoint is to continue to monitor the pertinent data, and to identify, as early as possible, any events that could damage the three pillars identified above. And, just like economic data has driven this rally since June, data that’s “Too Hot or Too Cold” can also undermine or end this rally.
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Investing entails risks, including possible loss of principal. Past performance does not guarantee future results. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2023 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.
Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Robertson Stephens Wealth Management, LLC and Fortune Financial Services, Inc. are separate entities and are not affiliated.
“TOO HOT” OR “TOO COLD” DATA CAN STILL UNDERMINE OR END THIS RALLY
By John Lau
July 31, 2023 – The stock market rallied to new 2023 highs last week on strong earnings and a largely as expected Fed decision before hot economic data saw volatility pick up into the weekend.
Unlike the January-through-May advance in the S&P 500, the rally since June hasn’t been driven primarily by too-bearish sentiment or the impact of just seven stocks on the S&P 500 (while the other 493 did nothing). Instead, the rally since June has been quite logical: Solid growth, falling inflation, and a looming end to Fed rate hikes. I call them the “Three Pillars” of the rally: Soft/No Landing, Disinflation, and Fed Done (or Almost Done) with Rate Hikes, and as long as these pillars stay in place and are confirmed by the economic data, the outlook for stocks may continue to be positive near-term.
As I have said in the past, 2023’s market is all about data; since the end of May, data has been “Goldilocks”, which has powered the S&P 500 to current levels, and I think it is going to take more Goldilocks economic data to sustain this rally and possibly prime for an extension of it in the coming weeks and months. This week will be important because we get three important monthly economic reports: Jobs Report, Institute of Supply Management (ISM) Manufacturing Purchasing Manager Index (PMI), and ISM Services PMI. The S&P 500 needs Goldilocks economic data to hold current levels, because markets are not at all pricing in a chance for a hard landing, nor are they pricing in another rate hike. Data that makes either of those more likely will be negative, given current valuations.
Our focus from a risk management standpoint is to continue to monitor the pertinent data, and to identify, as early as possible, any events that could damage the three pillars identified above. And, just like economic data has driven this rally since June, data that’s “Too Hot or Too Cold” can also undermine or end this rally.
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Investing entails risks, including possible loss of principal. Past performance does not guarantee future results. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2023 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.
Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Robertson Stephens Wealth Management, LLC and Fortune Financial Services, Inc. are separate entities and are not affiliated.
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