[Insights] (7.12.23)3 Reasons for July’s Soft Start (Guru’s Perspective)

7.12.23

3 Reasons for July’s Soft Start (Guru’s Perspective)

#1. First,

June was a phenomenal month for the stock market. The S&P 500 soared 6.5% higher last month, while the NASDAQ rallied 5% higher and the Dow was up 4.6% in June. That capped off what was a pretty spectacular first quarter, too, with the S&P 500 up 16% and the NASDAQ soaring nearly 32% in the first six months of the year. So, one of the reasons for the pullback this week was simply that stocks needed a breather. After big runs higher like what we saw in the first half, stocks need to consolidate these gains.

#2 Second,

a lot of the hopes that the Federal Reserve was done raising rates in the near term were dashed with the release of the Federal Open Market Committee (FOMC) meeting minutes from June. The minutes revealed a division between FOMC members, as a few members would have opted for a 0.25% rate hike rather than a “pause.” That went against earlier reports that the Fed’s decision to pause in June was unanimous. The June FOMC minutes also showed that the majority of FOMC members expect more rate hikes this year, which backs up Fed Chair Jerome Powell’s hints that two more rate hikes may be necessary. So, Wall Street was a little disappointed that the Fed isn’t done raising rates yet.

#3. And third, market rates soared higher on the heels of better-than-expected employment data this week. The ADP report showed that the private sector added 497,000 jobs in June, which crushed expectations for 220,000. Then, the Labor Department reported that 209,000 jobs were added in June, compared to economists’ estimates for 240,000 jobs. In turn, the 10-year Treasury yield soared back above 4%, a level not breached since back in early March.