June 10, 2023 Market Update
The recent run of good news for the economy helped lift U.S. stocks for a second week. The latest headlines that have encouraged the bulls include a surprisingly robust jobs report for May, a resolution of the debt-ceiling crisis, and bets that the Federal Reserve will not raise interest rates at its next policy meeting.
By some accounts, last week’s rally ended a bear market after the S&P 500 Index (a benchmark of 500 of the largest U.S. publicly traded companies) closed 20% above its previous low in October.
For the year so far, the performance numbers certainly look solid. The S&P 500 has risen 12% year-to-date, with a substantial portion of total returns driven by the recent burst of investor optimism in artificial intelligence that has fueled the surge in technology stocks. As a result, a handful of large-cap tech firms such as NVIDIA Corp. (NVDA), Alphabet Inc. (GOOGL), and Apple Inc. (AAPL), have accounted for the lion’s share of the indexes’ gains.
The big question now is whether the rally in these big tech superstars will lose steam, allowing the broader market to play catchup? Alternatively, has the tech run gone too far too fast and thereby threatens to pull the broad market lower? A related question: Will the U.S. economy enter into the long-predicted recession, and drag the stock market down with it?
There’s also another possibility that’s worth considering: the economy stays resilient for longer, muting the severity of an economic downturn or possibly sidestepping a recession altogether and thereby limiting any market pullback to a garden-variety correction.
It’s unusually difficult to get a clear read on the big picture at the moment and so making a big bet is problematic in my view. The future may be a bit clearer after next week’s inflation report for May, followed by the Federal Reserve’s policy announcement for interest rates.
Last week, the Securities and Exchange Commission announced it had filed lawsuits against Binance and Coinbase, alleging the crypto exchanges failed in their obligation to register to operate as a securities exchange. The suits, which come on the heels of last year’s collapse of crypto exchange FTX, dealt another blow to the cryptocurrency industry, which has taken the position that crypto is not a security, and therefore is not subject to SEC regulation.
Share prices of several cryptocurrencies plunged last June, as many investors soured on the idea of investing in digital assets. However, crypto staged a major comeback earlier this year, as the banking crisis and the debt ceiling increased the attractiveness of alternative investments to some market participants. The question is whether the SEC’s attempt to regulate cryptocurrency will lead investors to once again reconsider the merits of bitcoin and its competitors as investments.
When asked what he thought about crypto, Warren Buffett replied: “In terms of cryptocurrencies generally, I can say almost with certainty that they will come to a bad ending.” I don’t know whether the Oracle of Omaha’s prediction will be proven right, but I don’t see the cryptocurrency roller coaster ride coming to an end any time soon.
That’s all for now. Have a great weekend, and invest wisely my friends.