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First Half Review and Second Half Update

| July 10, 2023

I am willing to bet most people did not foresee or predict how the first half of the year turned out. The S&P 500 finished up 16.33%. The Dow Jones Industrial Average (DJIA) is up 3.8%.  Emerging Markets were up 5.02%. Finally the Barclays Aggerate Bond is up 2.09%.

My first observation is the S&P 500 is an outlier. Why? Mostly because the big cap tech stocks did very well. Bonds were actually higher priced even though short-term rates went higher.  

The Federal Reserve has been both Dovish (lower rates) and Hawkish (higher rates). Today they appear Hawkish, as they hint of a rate hike at their next meeting.  They are still terrified of inflation even as inflation has moved down.  This would normally be a headwind for stocks but earnings have been reported mostly better than expected.  In addition, most market players believe, even if the Fed is not done raising rates, they are very close. Last Friday, when the jobs report was released could sway the Fed either direction on rates.  The number was reported 209,000 new jobs. Inflations numbers be reported this Wednesday which may be key for future Fed decisions.

Real Estate prices have actually done ok the first part of the year.  But this is mostly a function of low inventory and not so much huge demand.  Mortgage Rates may have caused some potential sellers to hold off selling until rates move down for their next mortgage.  

At the first of the year I commented, I thought markets would be mostly sideways the first half and better the second.  I was mostly right. I looked back to my February 6th email. This was the first time the different averages moved over their moving averages.  My final line was "Are we in a new Bull Market?". It appears I was right.

I believe the markets will have a good second half.  I think rates will be lower at the end of the year than they are today. I think the economy may already have slowed enough for the inflation rate to continue falling. This, in turn, should take the pressure off the Fed.  If the economy does fall into recession, I believe it will be mild.  And finally, the USA is coming into the Presidential election cycle.  This will also put pressure on the Fed to not do anything which could favor either party.  This tends to be good for markets.

My last commentary, I mentioned I believe it was time to add a little more wind in the sails. So far so good on that move.  

As always, please call me with any questions or comments.


John

The views stated are not necessarily the opinion of First Allied Securities and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.

The MSCI Emerging Markets Index is a selection of stocks that is designed to track the financial performance of key companies in fast-growing nations. It is one of a number of indexes created by MSCI Inc., formerly Morgan Stanley Capital International.

The Barclays Aggregate Bond Index is a market value-weighted collection of the whole U.S. bond market, excluding municipal bonds, Treasury inflation-protected securities (TIPS), and high-yield bonds.