May 2023: Competing Forces Pulling and Pushing Markets

The U.S. stock market is up a modest 3% through the end of April 2023.

Although the S&P 500 Index was up 8.6% through the end of April, the Dow Jones Industrial Average (DOW) and the Equal Weighted S&P 500 Index were up 2.9% and 3.2%, respectively. The outsized return of the S&P 500 Index was concentrated among a few large-cap stocks. The DOW is now up 14% from its low in October 2022.  Ever since WWII, once the stock market is six months past a market low, the S&P 500 has been higher six and twelve months later.  This phenomenon occurred 12 of 13 times since WWII.  Clearly, history gives us confidence that the market low was probably established in October 2022.

The U.S. economy has avoided a recession thus far; surprising man economists and us!

While the economy is slowing, the consumer has kept this economy growing.  The Gross Domestic product “GDP” growth rate for the March 2023 quarter was recently updated to a modest +1.1% with personal consumption +3.7% and business investment – 12.5%. With consumption 65% of the economy, it is fair to say as the consumer goes so does the economy.  Economists currently estimate the US economy will grow 0.5-1.0% in 2023 as measured by GDP. Ideally, the US economy should grow at 2.5-3.0%.

The FED raised interest rates by ¼ point on May 2, 2023.

We believe the FED will now pause and maintain interest rates at the current level for the next few months.  Inflation is declining and the economy is showing signs of slowing, giving the FED reason to pause.

Corporate earnings are expected to be down 1.7% in 2023, and to rebound to 12% growth in 2024 and 2025.

These estimates assume NO RECESSION and that the economy and earnings will resume growth after the current economic slowdown.  Predicting the economy beyond six months in the future has very little value.

Rich Lawrence May 3, 2023

AS always – We recommend only investing in the stock market with a long-term view (3+ years) and having cash available for emergencies and spending needs for the short term 2-4 years.


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