Alfred Lam, CFA, Senior Vice-President and Chief Investment Officer CI Global Asset Management
Markets have been volatile and recently bottomed amid bearish sentiments. The S&P 500 Index fell to 3667 on June 16th and subsequently rallied back to 4130 at the end of July. So, what happened between June 16th and July 31st to drive such a significant shift? The US Federal Reserve hiked rates by 75 basis points on June 15th and remained hawkish. The US economy tipped into recession as it reported two consecutive quarters of negative real GDP growth. Inflation reached a new high in June (US CPI: annual rate of 9.1%) but cooled in July (8.5%). Commodity markets started to adjust for recessionary demand. Oil prices (Crude WTI), for example, have fallen 16% since June. Consumer sentiments fell and CEO confidence reached very low levels. Inventory (ex. auto) was building as consumers turned cautious.
Based on the market data from July, it was hard to believe the S&P 500 Index was higher, not lower. The reality is markets typically bottom when investors have unrealistically bearish expectations. While there was a lot of bad news during June and July, it was not as bad as expected. In addition, second quarter corporate earnings were higher, albeit at lower rates compared to the past few quarters.
So where do we go from here?
Download the rest of Alfred’s comments here >> August Portfolio Construction
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