Next week looks to be interesting. The Federal Reserve Open Market Committee (FOMC) will have nearly real-time data as they meet Tuesday and Wednesday. The Consumer Price Index (CPI) will be reported Tuesday, with the Producer Price Index (PPI) coming out Wednesday. All eyes will be watching mid-day Wednesday as the Fed announces its decision on interest rates, provides its latest economic forecasts, and as Chairman Powell holds his press conference.

The futures’ market suggests a pause in rate hikes as Fed Funds are held at the current 5.00 – 5.25%. The current outlook suggests the FOMC holds off until the July meeting before enacting its anticipated hike of yet another 25 basis points. Of course, it is highly likely the policy statement will be accompanied with the all-to-familiar reference to data dependency. In other words, there is plenty that can happen between now and the July meeting.

Q1 Earnings

Per FactSet, 99% of the S&P 500 components have reported earnings. The bad news is that for the second consecutive quarter, corporate earnings were off. The good news however is that earnings were down only 2.1% and not the 6.7% anticipated decline prior to earnings being released.

Current Multiples and Targets

Using a bottom-up approach, per FactSet, 2023 S&P corporate earnings are expected to be positive! Only 1.2% for the year, but still positive, nonetheless. Keep in mind, significant swings in earnings are anticipated quarter-by-quarter. Perhaps even more encouraging, the street consensus bottom-up price target for the S&P 500 over the next 12 months is some 11% higher than it closed Friday. Music to the ears of long investors should this come to fruition!

Something to Celebrate

The S&P 500 rallied over 20% since the lows in October 2022, marking a new bull market. This is despite a close call on the debt ceiling, myopic obsession over the Federal Reserve and its interest rate policy, the regional banking crisis, mixed economic data, ongoing recession concerns, corporate earnings, political and geo-political issues, and the US Dollar. The S&P 500 is still approximately 11% below the highs of January 2022, but we’ve experienced a nice comeback, nonetheless.

Why Doesn’t it Feel Like a Bull Market for Diversified Investors / Portfolios?

Up until the last couple of weeks, the recent rally has been narrowly focused to large cap technology stocks – many of which hold promise of upside due to advancements in AI - Artificial Intelligence. In fact, according to Barron’s, the seven largest components of the S&P returned over 77% YTD through May, while on average, other components lost approximately 1.2% YTD. Through Friday, on a capital appreciation basis, the S&P 500 closed up nearly 12% YTD, whereas the equal weighted S&P was up 2.4% YTD.

Thank you!

There will be plenty to observe this coming week. In the interim, make it a great rest of your weekend! We greatly appreciate you and your business! Thank you for the opportunity!