Equithy Reports- Anticipating a Thrilling June 2023 Stock Market Surge

London, United Kingdom, 8th Jun 2023 – An analyst at Equithy says that in the wake of a rollercoaster month in May, where debt ceiling concerns and a banking crisis loomed, investors found solace in the tantalising possibility of the Federal Reserve hitting pause on rate hikes. Despite the S&P 500 posting a modest gain of less than 1%, the month ended on a high note as President Joe Biden and House Speaker Kevin McCarthy rallied their congressional troops, paving the way for a preliminary debt ceiling compromise.

Should the Biden administration and Congressional Republicans successfully raise the debt ceiling, thus averting a U.S. default, the stock market could maintain its bullish momentum for an extended period.

Undoubtedly, concerns about a potential recession later in 2023 persist, as they have for nearly a year. Nevertheless, investors draw hope from the solid first-quarter earnings season and the potential for a Federal Reserve pause, setting the stage for a robust market performance in June.

Two pivotal catalysts that have dominated headlines in the past year continue to hold prominence: inflation and interest rates.

While the consumer price index showed a year-over-year gain of 4.9% in April, down from the peak levels of 9.1% witnessed in 2022, it still remains above the Federal Reserve’s long-term target of 2%. Fed Chair Jerome Powell, speaking at a conference in May, emphasised the persistence of high inflation and the central bank’s unwavering commitment to achieving price stability. Powell also acknowledged that the recent U.S. banking crisis, resulting in the collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank, had tightened credit markets and potentially dampened economic growth and inflation.

Consequently, Powell noted that the policy rate might not need to rise as much as anticipated to accomplish their objectives. The Federal Open Market Committee raised interest rates by a quarter of a percentage point in May, marking the tenth consecutive rate hike since March 2022. However, Powell cautioned that the Fed would carefully evaluate data and the evolving economic outlook before making any interest rate decisions at the upcoming June meeting.

Quincy Krosby, chief global strategist for LPL Financial, suggests that a potential rate hike in June remains a possibility if the May inflation data exceeds expectations. While there has been considerable speculation regarding a “pause” at the upcoming meeting, Krosby believes that the data-dependent Fed will consider a range of information before reaching a decision on June 14. She argues that the FOMC may opt to take a measured risk by raising rates further rather than pausing prematurely. Powell’s criticism of the “stop and go” monetary policy of the 1970s, which contributed to stagflation, underscores his commitment to avoiding a similar scenario and restoring price stability.

As of now, the bond market indicates a 28% chance of the Fed maintaining its current fed funds target rate range in June, with a 72% likelihood of another 25 bps hike, according to CME Group.

Embracing the Bullish Wave: A Promising Outlook for the June 2023 Stock Market

Despite the uncertain economic outlook for 2023, investors have reasons to be optimistic, particularly in June and beyond. By May 25, the S&P 500 had already gained approximately 9% year-to-date, with that day marking the 100th trading day of 2023. Historical analysis reveals that when the S&P 500 records an 8% or higher gain on the 100th trading day of a calendar year, it tends to achieve an average additional gain of 10% for the remainder of the year. The last time the S&P 500 exceeded an 8% gain on the 100th trading day was in 2021, and it closed the year with a robust 26.9% gain.

For investors concerned about a potential U.S. recession, adopting a more defensive approach by reducing exposure to stocks and increasing cash holdings can provide financial flexibility in 2023. Online savings accounts are already offering interest rates of 4% or higher heading into June, and these elevated rates are expected to persist for several months.

Value stocks, historically outperforming growth stocks in high-interest-rate environments, underperformed in 2022. However, in 2023, the trend has reversed as investors anticipate the end of rate hikes and the possibility of the Fed shifting toward rate cuts by year-end. So far this year, the Vanguard Value ETF (VTV) has experienced a total return loss of 2.6%, while the Vanguard Growth ETF (VUG) has generated a positive total return of 25.1%.

Adam Turnquist, chief technical strategist for LPL Financial, presents a compelling case for the S&P 500 to reach new all-time highs in the coming months. He highlights the continued technical progress in the broader market and the potential conclusion of the Fed’s rate-hiking cycle, which may precipitate a change in sentiment and prompt significant short covering pressure. According to Turnquist, these factors could propel the S&P 500 on a relatively rapid ascent toward the August highs, nearing the 4,300 mark.

With a positive outlook and various factors at play, June 2023 holds the promise of a thriving stock market poised to embrace new opportunities and chart an upward trajectory.

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