Quick Recap
- The S&P 500 closed the week at 4,280.15, on expectations inflation is peaking. The market gained for the fourth consecutive week, the longest winning streak since November 2021. The VIX fell yet again, to 19.53.
- Big Tech continues to rally. We remain positive on names such as AAPL, MSFT, and GOOGL, among others, both from an ESG and Fundamental investment standpoint.
- My near-term market outlook is that we may see some consolidation in the near term, but equity markets still can move higher assuming corporate earnings remain positive.
Details
Who says “Trade in May” and go away? We have seen a strong summer rally for U.S. equity markets. Amid investor concerns of recessionary/stagflation fears (neither are my base case), 40-year-high inflation (backward looking data), wars, supply chain interruptions, and central banks raising interest rates across the globe. As I speak with investors, a common question is becoming evident to me: Given the recent equity market rally, is the bear market of 2022 over in the second half of the year?
My expectation is that I think it is possible for most U.S. companies to have the potential to generate double-digit earnings growth in this environment which could allow U.S. equity markets to move higher from current levels. I saw the VIX has fallen below 20 for the first time since April, inflation is clearly cooling, and a soft landing could be possible. What attracts me to the equity markets as a stock-picker is that more than 80% of the stocks in the S&P 500 are now above their 50-day moving average (according to Newday Impact Research), another potential positive signal.
Given my international background, clients do ask about the outlook for the U.S. Dollar currency. As I keep track, the U.S. Dollar Index continued its slide from the July 14 high, down roughly 3% in that period. For about five years, I have seen a clear inverse correlation between the USD and risk assets, and I believe what investors have witnessed this summer is no different. The S&P 500 has now gained about 17% from its lows, and it has cut its losses from its peak by almost 50%. The Dow Jones Industrial Index, meanwhile, has gained about 13% and the Tech heavy Nasdaq has rebounded nearly 23%. The USD remains the safe haven currency (according to Bloomberg) and I call it the “boomerang” currency. Every investor returns to it during times of uncertainty.
Scotsman’s Outlook
- The Newday Investment team has added to the Healthcare sector to provide defensive growth exposure.Within the S&P 500 sectors, Healthcare has beaten the market year-to-date. Newday portfolios, for the most part, have benefitted from this stock selection.
- The recent rise of Information Technology stocks has been robust and given the exposure in the S&P 500 it is important. Sentiment, plus my proprietary models, all point to a potential second half rally. I would contend the market is a little overdone, and needs a pause. Although, as I have written, my base case is still that the market should rally in the second half of the year.
- As I have consistently written, I expect inflation continuing to fall from elevated once in a cycle outcomes.
- The Scotsman and his team continue to watch interest rates. If yields start to rise, this could be a negative factor for equities.
- As an equity investor, the market is getting stronger and stronger as evidenced by returns. Breadth is moving up sharply even including smaller cap companies. I see the percentage of stocks above their 50-day average is now at 80%, the highest level in more than a year.
- As such the Newday Impact equity team remains committed to our high quality ESG, Fundamental Thematic portfolios.
This commentary is provided for information purposes only and is not an offer or solicitation of an offer to buy or sell any product or service. Unless otherwise stated, all information and opinion contained in this publication were produced by Newday Funds, Inc. (“Newday Impact”) and other sources believed by Newday Impact to be accurate and reliable. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions about the financial markets, general investment strategy, or particular investments are not recommendations to clients and are subject to change without notice.
Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Past performance does not guarantee future performance.