US Market In August & Rising US Interest.

Is it safe to assume that last Thu, 27 July was an exception when US market could not hold onto its upwards momentum and fell; snapping Dow Jones 13th day (straight) rally.

On Fri, 28 July, whatever negativity that caused Thursday’s dip evaporated.

US market ended the week on a high:

• DJIA: +0.50% (+176.57 TO 35,459.29).

• S&P 500: +0.99% (+44.82 TO 4,582.23).

• Nasdaq: +1.90% (+266.55 to 14,316.66). Best performing index on Friday.

Did You Know:

• US market’s gains have been accelerating in the past 2 months, June and into early July.

• As we are about to start August trading month - (a) S&P 500 has gained another +3%, (b) Nasdaq composite +3.8%, and (c) Dow Jones Industrial Average +3.1%.

• Top 10 stocks accounted for 37.4% of the total return in the S&P 500 during first six months of 2023.

• Interestingly, only 3 of the 10 stocks are non-Tech. They are (i) $Berkshire Hathaway(BRK.B)$ , (ii) $Eli Lilly(LLY)$ and (iii) $JPMorgan Chase(JPM)$.

How will US market behave, as we commence trading in the month of August 2023?

To make an “educated guess” means (i) looking at past achievements and (ii) looking forward into the “future”.

It is timely to look at official data released so far and have a sense of how “healthy” the US economy really is.

This would mean diving into:

• PCE June 2023.

• GDP Q2 2023 preliminary estimates.

• Conference Board (CB) Consumer Confidence, June 2023.

• US New Home Sales, June 2023.

• PCI June 2023.

• US Interest Hikes.

(1) Personal Consumption Expenditure (PCE) June 2023.

• PCE finally has a significant dip for June 2023; registering 4.1% down from last month’s 4.6%.

• For the longest time, PCE was flip-flopping between 4.6% and 4.7%.

• US Market heaved a sigh of relief and rallied last Fri, 28 Jul when it finally fell below 4.6% for the first time.

• **Note: There’s still -1.9% (more to go) before the Fed achieves its “2% targetted goal”.

(2) US Gross Domestic Product Q2 2023 (Preliminary)

• US’s Q2 2023 gross domestic product registered its “strongest” quarterly growth.

• Coming in at a “strong” 2.4% vs market expectation of 1.8%.

• It is also a +0.4% improvement over Q1 2023’s GDP.

(3) Conference Board (CB) Consumer Confidence - June 2023

• Conference Board (CB) Consumer Confidence measures the level of consumer confidence in economic activity. Higher readings point to higher consumer optimism.

• June 2023 data came in “stronger” at “117” vs forecast of “111.8”; indicating US consumers are confident about the economy.

• June 2023 data is also stronger than May 2023’s 110.1.

(4) US New Home Sales, June 2023.

• For June 2023, new Home Sales was “697,000” units (sold) vs forecast of “725,000” units. This is -3.86% short of forecast.

• Compared against May 2023 data (715,000 units); June is also weaker by -2.52%.

(5) Consumer Price Index, June 2023.

• Non-core CPI for June 2023 came in below the 4% mark for the first time.

• The Bureau of Labor Statistics also highlighted that this is smallest YoY increase since March 2021; followed by May 2023’s 4.0% YoY increase.

• Looking at above diagram, inflation is coming down; albeit slower than what the Fed has wished for.

(6) US Interest Hike.

• With the 11th interest hike confirmed on 26 Jul 2023, Fed funds rate is between 5.25% and 5.5%.

• This is an an unprecedented high since March, 2001.

• Wall Street veterans and renown economists have weighed in on the situation.

• All claiming that it will cause the economy to slip into recession.

• It has been 17 months since the Fed fired the first salvo on 17 Mar 2022 with a modest 0.25% hike.

• Sufficient to say the US economy has come a long way and the onset of recession is not worth a mention yet.

Effectives of Fed’s Tool vs Inflation

The Fed has identified “interest rate” adjustment as the financial tool that they would leverage to tame US runaway inflation.

How successful has interest been at taming inflation versus damages caused?

Interest hike vs CPI (2021 to 2023)

• Look at above chart that is a “mashed up” of (a) US interest hike and (b) US consumer price index between Year 2021 to 2023.

• It is plain to see that after US “inflation ascend” peaked at 9.1%; the aftermath of interest hike (escalating business costs, cooling of consumerism, bank-run etc..) is inflation is slowly but surely decelerating.

Is it time to pop the champagne?

My View On US Market In August 2023.

• US market may face some volatility & uncertainty in August 2023, as it balances the positive and negative factors affecting the economy and corporate sector.

• In addition to being mindful, it is time too to embark on modest investment by (a) fortifying existing stocks in your holdings or (b) buy into your monitored stock/s when the “price is right”.

• Quarterly earnings have been comforting with the Mega caps companies mostly reporting “better than expected” earnings.

• Will it persist into Q3 2023; no experts seemed to be able to provide a full assessment of the situation as we head into August - Q3 2023’s middle of the month.

• With a rousing end to July 2023 trading (yesterday), I think there is a lot of sustained energy in the market.

• Everyone just have to trade with their eyes wide opened.

• When its time to sell or partial-sell, there must be no emotions attached.

• Do you think US market will continue to do well in August, 2023?

• Do you think you will buy when the market has already made tremendous recovery +more?

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