By Rick Schwerd |
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for
our next update on July 10.
Tech Stocks Lower as Markets Take a Breather
After a historic run that saw the S&P 500 cross the 7,600
threshold earlier this month, Wall Street finally took the "breather" we anticipated in our last update. The index
is down 3 percent from its early June high. A major shift in investor sentiment hit the high-flying tech sector,
triggering a notable correction in some artificial intelligence (AI) stocks.
The tech-heavy Nasdaq pulled back sharply, falling nearly 10 percent from its closing high on June 2, now sitting at
25,300. The index remains up 9 percent this year. The index has had three days with moves of 3 percent up or down
during June so far as investor sentiment has swung sharply.
Conversely, money has started rotating into more traditional value and cyclical sectors. The Dow Jones Industrial
Average showed remarkable resilience against the tech selloff, bucking the trend to hit a new record high of 52,500.
Small-cap stocks are having a great month and year, with the Russell 2000 small-cap index up nearly 5 percent over
the last month and 21 percent higher year to date.
Remaining Positive
We remain positive on equity markets overall. Pullbacks and periods of volatility are typical during the year. The
fact remains that corporate earnings and earnings expectations are the biggest factor in stock prices over the long
term. Earnings and expectations continue to be very strong.
According to Earnings Scout, 13 S&P 500 companies have now
reported results classified as second-quarter results due to odd fiscal years. All 13 companies have exceeded EPS
expectations and are producing the strongest year-over-year earnings growth in six years, when results were
distorted by the pandemic. With earnings season set to begin in earnest in mid-July, many current investor concerns
may be answered.
The Federal Reserve Takes a New Approach
The Federal Reserve met last week, marking the highly anticipated debut of new Fed Chairman Kevin Warsh. While the
Federal Open Market Committee (FOMC) held the federal funds rate steady at 3.50 percent to 3.75 percent as expected,
the meeting delivered a distinctly hawkish surprise that got markets' attention.
The Fed's updated dot plot chart showing officials' interest rate projections revealed a complete reversal from
March. The median year-end rate projection jumped to 3.8 percent, effectively erasing previous expectations for rate
cuts this year. Half of the committee members now project at least one rate hike before December to combat sticky
inflation and energy shocks from the Middle East.
Furthermore, Chairman Warsh signaled a major shift in how the central bank will operate. He delivered a drastically
shortened policy statement, stripped out the highly parsed "forward guidance" language of the past, and refused to
submit his personal projection to the dot plot. Warsh is signaling a move away from scripted central bank promises,
choosing instead to let incoming hard data dictate future policy moves. With the Fed firmly on hold and biased
toward tightening, the markets must adapt to a "higher-for-longer" reality.
Oil Prices Drop
The price of a barrel of West Texas Intermediate Crude oil (WTI) has
fallen back to nearly where it was before the start of the Iran War. The price was $67 a barrel the day before the
start of the war and hit $117 in early April as the Strait of Hormuz was closed. The price now sits at $70 a barrel. This should
benefit the economy as we enter the second half of the year and take some of the steam out of inflation as well.
Happy 250th!
We wish everyone a happy upcoming Fourth of July weekend as we celebrate our nation's 250th anniversary and remember
those who have served to protect the freedoms we enjoy.
As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out
to us at (518) 415‑4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a
Senior Investment Officer at Arrow Bank. He oversees individual and corporate retirement plans, personal trusts,
investment management accounts, foundations and not‑for‑profit relationships.