Zenith Wealth Partners

Monthly Investment Insights – July 2023

The second quarter of the US economy saw an unexpected acceleration as GDP expanded at an annualized rate of 2.4%, surpassing the 2% growth rate recorded in the first quarter. Economists surveyed by Bloomberg had predicted a growth rate of 1.8%, making this an impressive performance. However, opinion will likely be divided on whether this report indicates that a recession will be delayed or avoided. Despite the ongoing economic risks, the strong GDP report could increase the chances of a “soft landing” for the economy. Nevertheless, it may also lead the Federal Reserve to consider additional interest rate hikes.

As expected, the Fed raised the benchmark fed funds rate by another 25 basis points to 5.5%, marking the 11th hike since March 2022. Job growth, which had been accelerating, may have prompted the Federal Reserve’s more aggressive tone last month. However, signs of a cooling job market and a substantially better June inflation report bolster the story that the Federal Reserve won’t need to keep its aggressive stance and tone for much longer. The Fed doesn’t expect to fully tame inflation until around 2025 though the Fed staff is no longer forecasting a recession. These recent developments may help keep equity markets strong and builds the case that a “soft landing” for the economy is possible.

Based on market trends, if the S&P 500 remains above its 10-month moving average for more than two months following a bear market, it indicates a bull market rally. This threshold was crossed on May 23rd. Stocks surged in the first half of the year, driven by mega-cap technology, or technology-adjacent, stocks. The media dubbed these top stocks the “Magnificent 7” and include Apple, Amazon, Alphabet, Meta, Microsoft, NVIDIA, and Tesla. However, the performance of these stocks isn’t just the hype of AI. First, most of the “Magnificent 7” had a rough 2022. As fears of rapidly rising interest rates have subsided, technology companies have begun recovering in 2023. This shows a very strong performance when only looking at this year’s data.

Second, the collapse of Silicon Valley Bank and the related banking turmoil has weighed on multiple sectors and slowed their growth rates, making the Technology sector look even better. Collectively, the Technology rally has been welcoming for investors – but it’s not just about AI. Another positive trend supporting this market rally is that the high number of job openings has enabled workers to push for higher wages, creating optimism that consumers can continue to support the economy despite persistent inflation.

All written content is for information purposes only. Opinions expressed herein are solely those of Zenith, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

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