“Good investors gather information, put that information into current and historical context, then make sound decisions.”
June has provided a nice short-term advance for equities, as well as a broadening in the market. The broadening in the market is the best news, as equity indexes had previously been driven almost entirely by a handful of giant cap stocks. In June we have seen additional participation by MidCap and SmallCap equities. This has spread into a number of equity sectors as well, which was a glaring vulnerability in May. While this has been but one month, which does not a market make, it is a strong finish to the second quarter and the first half of 2023. Some may attribute the gains to ‘window dressing,” but the rally has been running the entire month of June, not just the last week. It may also be argued that the June advance was forward-looking portfolio rebalancing, but there were no sector sell-offs to balance the buying. It was just broader buying.
The May Monthly Commentary was packed full of numbers and my intent is to lean back on the numbers and provide more narrative in the June Monthly Commentary. That being said, I need to provide evidence for the narrative, so here is a presentation of the numbers, aka evidence. The S&P 500 Index has gained +4.83% MTD, while the S&P MidCap 400 Index has gained +7.13% MTD, and the S&P SmallCap 600 Index has gained +6.29% MTD. This is strong evidence of the market broadening from a capitalization perspective. From a sector perspective, every major market sector index that we monitor is in positive territory for June. The strongest have been the Dow Jones Transportation Index, +11.67% MTD, the S&P Consumer Discretionary Index, +10.27% MTD, the S&P Industrials Index, +9.70% MTD and the S&P Materials Index, +8.43% MTD, all core growth sectors. The weakest sectors have been Dow Jones Utilities Index, +1.30% MTD, the S&P Consumer Staples Index, +2.42% MTD, and S&P Health Care Index, +2.64% MTD, all core defensive sectors.
International equities were also picked up in the June buying. International equities were advancing earlier in the year, which is a strong supporting factor that this is a global Bull Market, not just a U.S. Bull Market. In fact, year-to-date developed international equities are experiencing a stronger year than U.S. equities, with the exception of that handful of U.S. giant cap stocks. In June, the MSCI EAFE Index is up +3.63% MTD, the MSCI Emerging Markets Index is up +3.93% MTD, and the MSCI Europe Index is up +3.36% MTD. This is representative of broad institutional buying into a global Bull Market.
Bond markets have had a more sedate June. In their defense, there was a lot of fundamental data released in June, mostly positive for the economy. More importantly, the Federal Reserve met and determined that they would not raise short-term rates in June, but hold out for at least two more quarter-point increases later in the year. That absolutely was a “good news now, bad news later” forecast. This could dampen the immediate prospects for bond buyers. As for the month of June, the Bloomberg US Aggregate Bond Index is down -0.14%, with the Bloomberg Municipal Bond Index up +1.11%, and the Bloomberg US Corporate High Yield Bond Index also up +1.11%. All of our major bond indexes are in positive territory for the year.
In the May Monthly Commentary I suggested that that the narrow rally would broaden, which has occurred. That does not make me prophetic, just optimistic in light of the data. One of the realities when looking at the long term progress of equity markets is that the Bullish Argument has been winning. Not just for the last 5 years, or 10 years, but for the last 70 years. And there is ample data to support it! Charts, graphs, and spreadsheets all support the fact that being Bullish, being optimistic, being forward-looking rather than backward-looking, has been the most productive approach.
Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.
Sources: StockCharts, Morningstar, Stock Trader’s Almanac.