Contrary to the 2022 forecasts, Wall Street excelled in the first half of the year which, in hindsight, brought many risks: from high-level inflation, through firm rate hikes, to the March banking crisis.
By various bodies, the actions technological stood out, after the sharp drop in 2022. In this sense, the Nasdaq is up 31.7% since the start of 2023, in what was its best first half in 40 years. No doubt part of this was due to the base effect: the technology index had plunged 33.1% last year.
He S&P500 and the Dow Jones Industrial Average, on the other hand, they did not do badly either. He first rose 15.9% to have its best first half since 2019, while the Dow rose 3.8%.
“To a large extent, the US economy showed optimistic signs. The growth figure for the first quarter was revised to 2%, from 1.3% previously. This was largely supported by consumption, which expanded strongly,” analyzed from Criteria.
In this framework, there was clearly three sectors that stung in point in the first semester: “The rise in the accumulated figure for the year was basically led by ´information technologies´ (40.3%), ´communication services´ (36.1%), and ´discretionary consumption´ (29%)”remarked a report by Investing in the Stock Market (IEB).
Source: IEB, based on Bloomberg.
The stellar performance of equities came despite a restrictive monetary context: the Federal Reserve made it clear that does not expect to lower interest rates this year. This is because beyond the drop, inflation continues at levels considered high, beyond the slowdown in recent months.
What’s more, from Europe, last week Jerome Powell reiterated his message that the FOMC (Monetary Policy Committee) will probably increase its monetary policy rate two more times by 25 basis points this year, but that decisions will be made meeting by meeting and according to the information that is get to know
According to market expectations, “only at the meeting on May 1, 2024 is it estimated that the FOMC would make the first interest rate cut. Undoubtedly, the surprise in the new estimate of GDP growth during the first quarter of 2023 and the plateau in the decline in PCE (personal consumption inflation), have led the market to internalize the message that the FOMC has been transmitting, stating that the rate will remain without reductions until well into 2024,” said IEB.
Under this context, the 10 year treasury bond rate advanced 15 basis points in June towards 3.85%affecting the performance of fixed income in June, commented from Criteria. Thus, the Treasury bond of intermediate duration fell 1.5%, while the investment grade corporate 0.1% did. The High-yield debt, on the other hand, rose 0.9%, Criteria reported.
Wall Street: which sectors to target in the second half
Of the three winning sectors of the first half of the year, “consumption discretionary” aims to be the one “that maintains the most upward pressure, since in the accumulated it is the one that is lagging behind with respect to the other two (“information technology”, and “communication services”)”, They explained from IEB.
In turn, of the winning sectors last year, ´public services´ and ´basic consumption´ continue “without interest on the part of the market. Conversely, we see a recovery in ‘health’ and ‘energy'”, they added.
On the other hand, a sector hit by the crisis suffered in the first quarter is beginning to be interesting: the financial sector. “The year began with a behavior very similar to the S&P500 index, but the banking tensions in March caused it to fall due to the uncertainty that settled in the sector”stressed IEB.
Actually, last week the Federal Reserve made the annual presentation of the “stress test”which left very good news for the sector. To carry out the test, the Fed proposed a severe global recession scenario, in which a 40% decrease in commercial real estate prices is generated, a substantial increase in empty offices and a 38% decrease in sales. house prices. The unemployment rate increases 6.4 percentage points to a maximum of 10%.
He submitted the financial situation of 23 financial institutions of various categories (I, II, III and IV). Within category I are the 8 largest banks in the US: Bank of America Co, Bank of New York Mellon Corporation, Citigroup Inc., Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, and Wells Fargo & Company.
The stress test concluded that the set of 23 institutions analyzed could bear a total projected loss of US$541,000 million and still stay above their minimum capital requirements and continue to grant loans. According to Michael Barr, head of financial institution supervision at the Federal Reserve, “The results confirm that the banking system remains strong and resilient.”
Source: Ambito
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