Markets continue to rally through June
Equity markets had another positive month as the S&P 500 was up 6% in June, bringing year-to-date returns to 14.5%, while the Nasdaq is officially back in bull market territory, up 36.7% year-to-date. Equity markets were up across the board in Europe, Canada, Japan, and Emerging Markets while China was down for the month. Better-than-expected economic conditions in the first half of 2023 has also contributed to this dynamic. The U.S. Economic Surprise Index has surged, indicating that economic data releases have been coming in above consensus forecasts. The previous concerns about an impending recession seem to have diminished, or at least expectations for a recession have been pushed out further to a later date. Fixed income markets ended the month lower as yields surged on strong economic data, raising expectations that central banks will need to stay hawkish for longer.
The NEI perspective
U.S. market rallied past the trading range ceiling of 4200 that it had previously and entered a technical bull market after returning over 24% since hitting a low in October. While the performance of AI exposed mega-cap technology companies has led the markets, the rally has recently broadened.
Market strength buoys investment sentiment as market sentiment has shifted from having more investors in the bearish camp, to having the majority of investors turning bullish over the past few months. In June, bullish sentiment was at its highest level since November 2021.
How sustainable is this rally? Excess savings, a tight labour market, reasonable valuations (outside of the mega cap technology companies) and the low bar set for earnings expectations indicate that the market may continue to rally in the near term.