CWG Investment Committee: The U.S. Market Was Hot Hot Hot in July

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The S&P 500 has come within 5% of its all-time high of 4,818 made back in December 2021. The index plummeted in 2022 amidst concerns over war and inflation which had reached 9.4% for the CPI. The bottom of this market cycle was probably reached in October 2022 when the S&P 500 dropped to 3,492. From that low point, pessimistic views by market participants began to melt away, leading to a powerful rally including a 19% gain for 2023 through the end of July.

S&P 500 Since All-Time High


Markets reflect not only economic and corporate realities but people’s emotions. The current rally pushed bullish sentiment to a one year high of 51.4% in July. Bears were only reported at 21.5% on the same AAII Sentiment Survey, down from 60.9% in September 2022.

Several catalysts have aided the rally and change in sentiment. 

Interest rates peaked for longer dated bonds as inflation dipped below 4%.

The US economy did not enter the oft forecasted recession. In fact, Q2 GDP came in above expectations at 2.4%. 

Global trade did not disappear as $32 Trillion in goods and services will change hands this year, according to The World Trade Organization.

Artificial intelligence has leapt into investor’s consciousness since the introduction of ChatGPT in November. Wall Street jumped on what is being perceived as a major new growth spurt, akin to the internet in the 1990s-, with Goldman Sachs estimating that AI could increase productivity by 1.5% and raise global GDP by 7% over the coming decade. After chipmaker Nvidia raised Q2 revenue guidance from $7 billion to an astounding $11 billion, the CEO stated, “A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service, and business process.”  

After an epic run in stocks that most forecasters missed, there are now calls for more of the same with Oppenheimer predicting a 4,900 level for the S&P 500 by year end.  

By conventional definitions, we are clearly in a bull market. But given that we have entered the summer months, we may find investors seeking some respite from the heat of the markets. Afterall, the Nasdaq had its best seven month stretch since 1975 while the S&P 500 notched its best seven month start to a year since 1997, according to Dow Jones Market Data.

In sum, it has been a great turn of events since the cold of January to the heat of July.

What has been set in motion will not easily dissipate as many investors are sitting on piles of cash that might look for greater long-term prospects once the Fed begins to reduce rates and 5% risk-free returns become more difficult to come by.

Of course, as hurricane season approaches a stock market squall is not out of the question. Concerns over recession remain, yield curves are inverted, and inflation is not yet tamed.

Happy August!