Mid-year is the perfect time to assess where we are compared to the tumultuous fall of 2022. Watch the video, or read below for more details.
- The S&P 500 is up by over 8% in the second quarter, and up over 24% since its low point in the fall. That’s only three and a half percent off its all time high.
- The Dow Jones also had a very strong first half in the second quarter. It’s up three and a quarter percent. That’s up 20% since its low point in the fall, and 7% off its all time high.
- The NASDAQ had a particularly strong performance of almost 13% in the second quarter. It’s up over 33% since its low point in the fall. It’s off 11% from its all time high.
The second quarter was marked by three very important in incidents, conditions, and really reaction by the government.
- The first thing we should talk about is the bank issues. We had we had a few banks be insolvent. The Federal Reserve stepped in, assured the liquidity of the banks, and restored confidence to that sector. It could have been economic chaos and could have created a lot of problems, if the government did not step in to do that.
- We also saw the Federal Reserve increase the rate twice in the second quarter. This really represented ten meetings where there was an increase in the Federal Reserve rate from about 0% to 5.25%. So we have had a continuing increase in our federal rate. However, in the last meeting, there was no increase. We’ll revisit this shortly. But that was a change in the direction of the Federal Reserve, creating a pause in those rates and also on the government level.
- On the legislation level, there was an increase in the federal debt ceiling. If that had not happened, that would have been a real potential problem.
So when we look at where we are going forward, given this assessment of our circumstances, there are a few positive things to know, a few negative things to note, and a few waits to be seen things.
To know on the positive note, of course, other than growth, we saw a real control of inflation. Inflation is 4%. From May to May, it is the lowest inflation of period over the last two years. And so that’s really a positive indication of things in the future, because the Federal Reserve increased the rates specifically to try and curb inflation. And it looks like they’re making very good progress, a very good sign.
From a negative standpoint, we see GDP slowing down in the first quarter. The numbers that we have for the last quarter show the GDP was up by 1.3% compared to 2.6%, in the fourth quarter of 2022. The GDP is really critical. The growth of the economy is what really drives all the markets. And so we see a little bit of a slowdown there. Watching this trend will be really critical going forward.
From the “wait and see” standpoint, watching the trend of growth in the GDP will be essential.
There are a few things we should note. First of all, certainly we don’t know what the interest rate environment will look like in the future. We don’t know what the Federal Reserve will do in the future. But that waits to be seen. And also we have to look at unemployment which is currently at 3.7%, a very strong figure. However, one of the issues is that unemployment might be too low. What the Federal Reserve is trying to do is really to create a slowdown in the in the economy, create a little bit more of unemployment, because the high employment level is driving inflation. So the low unemployment is really a good number, but it’s also a number that is really what’s the driving lot of the Federal Reserve policy. And so we wait to see how the unemployment figures tied to inflation.
The big question going forward is the recession possibility, what the economy is doing, and of course, how the economy responds to inflation. (There could be future stimulus to push the economy forward, but this could also create inflation.) So we’re not quite out of the big downturn market last year, when we had a bear market. We are hopeful, but we’re not quite at a place where we can say, hey, we have a raging bull market. We’ll have to just wait to see how the economy continues to respond to to the federal rate policies by the Federal Reserve.