The media environment around finance is currently rife with negativity, though that’s our norm. Drama and chaos sells. There’s no shortage of headlines telling us how and when we will only continue to see things get worse.
That might be true.
That might also be false.
We are the product of what we consume, and given your chance of consuming anything but negative market and economic news, how hard should we have to look to find any good news? Not that hard, really, but it surely is never obvious...
In the spirit of balancing your perspective, here are some positive signals we are seeing around the markets and economy:
Cash dropped below stocks in asset class rankings. For the first time since September 2022, we now see US equities outrank cash when we rank asset classes against each other. International equities have sat atop the rankings for a few months now, though US equities making a climb is a positive signal for the market as a whole.
International equities holding relative strength. Compared to the other asset classes under review (commodities, cash, fixed income, US equities, currencies), international equities have held the top position for some time after rallying in late 2022. European equities have had a large influence on this rise to the top, though countries like Japan, Mexico, and Argentina have bolstered the overall position of international equities atop all asset classes.
Domestic equities on multiple rallies, being led higher by large caps. Since late 2022, US stocks have worked hard to find some footing through multiple rallies. While none of these rallies have shot domestic equities up and away from its muted trading range, they have consistently shown higher highs on most pushes higher, and higher lows as well, attempting to cement a stronger floor. This positions the markets, typically, for stronger positive future moves. Large caps (specifically the largest of the large cap stocks, called mega caps) have had a huge influence on this slow and steady US market improvement.
Increased likelihood of nearing/passing the point at which the Fed will not hike rates further. While some assess there to be a potential for another .25% increase of the Fed Funds Rate, we are surely not at the place we were one year ago, where we truly had no idea where we would end up and how long rate increases might last. Even if rates do climb further, which still are heavily favored to STOP increasing, we are nearing the end if we aren't already there. When the Fed makes it clear that rate hikes are done, expect the market to react very positively.
Consolidation of stock market levels, and recent breakouts above past overhead resistance is now on display. Narrow trading ranges (defined as low- and high-points over the short- and mid-term) is consolidating of prices, meaning there are less pronounced swings higher and lower in the markets. We find that prices tend to bump into a ceiling price (at the top of a trading range) and also into a basement floor price (at the bottom of a trading range), and when prices break PAST either of these, those breakthroughs are signals that the market is finding new territory either higher or lower. Here are the recent positive breakthroughs higher that we've seen:
- S&P 500 Index (SPX) just broke through resistance last week, surpassing early 2023 highs, and nearing August 2022 highs
- NASDAQ-100 Index (NDX) significant broke above resistance earlier this month past August 2022 highs
- NASDAQ Composite Index (NASD) also broke through in early May, now nearing August 2022 highs
Technology sits atop equity sector rankings for the first time in 18 months. This is positive purely for the realization that there is STILL places to find growth in the stock market, despite the week-to-week ups and downs. Dig past the surface and you'll find semiconductors sub-sector to be a strong part of the tech sector leading the way upwards, particularly due to companies working to fold in artificial intelligence (AI) (and take advantage of revenue to be made by AI integrations).
GDP slightly higher in 1st quarter (1.3%) of 2023 than previously estimated (1.1%). While subtle, an increase in gross domestic product (GDP) is a signal that the economy is doing well. While the Fed is trying to beat inflation back down, GDP growth isn't necessarily in alignment with that goal, however, GDP growth despite all other economic and market occurrences is still a beacon of positivity.
Consumer Price Index (CPI) increased 4.9% in April. While this might seem nauseating still, consider that the number from June 2022 was an increase of 9.1%. We are still a bit far off from the Fed's desired number of 2%, though we are also much closer that we were from last June (which was the highest CPI reading we've seen since the 1980s).
Unemployment down to 54-year low of 3.4%. Low unemployment is another signal of a growing economy, and also something the Fed likely doesn't consider to be helpful in combating high inflation. That aside, there's a lot of people employed, earning money, and spending money on the economy. If they aren't spending (because prices are uncomfortably high), it's positive to consider consumer frugality, shoring up their finances for making it through this economic environment.
Existing home sales down 23%. This means rate hikes have worked to slow consumer borrowing. Mortgage rates have risen as a result of Fed rate increases. Decreased borrowing directly affects those that want to buy a new/existing home, as it's now much more expensive than it was even just one year ago. Couple that with housing prices barely inching lower in some parts of the US (while others have seen notable decreases), this is an early-stage indicator that the Fed will be satisfied enough to stop increasing rates, and eventually lower rates.
It's certainly not all sunshine and roses out there, but things are also not as resoundingly negative as your preferred news pundit makes it out to be.
You're the product of what you consume, so it's worth searching for some positive to mix in with the bigger, "normal" headlines out there riddled with negativity. The sky isn't falling.