In June, the S&P 500 surged 6.6%, reflecting broad market strength. The Fed signaled future rate hikes, and economic data remained resilient. Earnings for Q2 are projected to decline, but a rebound is expected in Q4. Job growth exceeded expectations, while wage growth fell short. Consumer spending drove a 2% rise in Q1 GDP.
While the consumer's strength has helped avert a recession, there are signs that it may be weakening, raising concerns among investors. Additionally, earnings for Q1 have declined for the second consecutive quarter, albeit at a lesser extent than initially projected. Analysts project further earnings declines in Q2 before a rebound in Q3 and Q4.
The S&P 500 is up 9.17% year-to-date, but just five companies are responsible for two-thirds of the advance. The index is trading at 18.3 times next year's expected earnings, which is above its 25-year average. Q1 earnings are on track to be down 3.7%, and forward guidance has not been positive.
The Fed decided to raise rates by 0.25% to a range of 4.75% - 5%. Powell acknowledged the recent banking issues and that it may lead to tighter monetary policy. However, he reinforced that their priority is to bring inflation down and that all future moves will be data dependent. The Fed updated their projections showing they anticipate one more rate hike this year.
Despite the strong economic data, there are some signs that the U.S. economy may be slowing down. Consumer debt is at a record high, and profit margins are falling. These trends could lead to a recession in the coming months.
After a tumultuous 2022, stocks started the year off strong, with the laggards of 2022 leading the charge. This was a welcome surprise for investors, who had been bracing for a more volatile start to the year.