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Why 2023 Is Shaping Up To Be A Historic Bull Market
By: Kevin Matras
June 17th, 2023
Stocks have been surging higher this year, and it looks like there’s a lot more upside to go.
As you know, all of the major indexes have officially exited their bear market and have begun a new bull market.
The small-cap Russell 2000 was the first one to exit their bear market back in August of last year. Then the Dow followed suit in late November of last year. The mid-cap S&P 400 exited their bear market in late January of this year. The Nasdaq ended their bear market and started a new bull just last month. And the S&P 500 joined the party less than 2 weeks ago.
One of the key signs that a breakout was coming was watching last week’s impressive gains by the equal-weighted S&P 500 index, which is different than the market-weighted S&P 500 index we are all used to watching. The double-digit gains in the market-weighted index this year have largely come from the 10 biggest names the index. But up until recently, the equal-weighted index was literally down for the year.
All that changed the other week when the equal-weighted index began surging as well. That was a clear confirmation that the breadth of the rally was widening. A very bullish sign.
That was further underscored by the sharp rallies in the small-cap and mid-cap indexes. Even though the small-cap Russell 2000 was the first to begin their new bull market, and the mid-cap S&P 400 was not far behind, they had lagged the other indexes for much of this year.
But they soared over the last couple of weeks, showing that the scope of the rally was no longer confined to just the handfuls of biggest names, but that the bullish sentiment was expanding to include all styles and sizes.
And traders wasted no time piling back into stocks.
YTD, the Dow is up 3.48%; the S&P 500 is up 14.9%; the equal-weighted S&P 500 index (ETF) is up 5.37%; the small-cap Russell 2000 is up 6.49%; the mid-cap S&P 400 is up 6.16%; and the Nasdaq is up 30.8%. (Tech is still one of the driving forces as referenced by the outsized gains in the tech-heavy Nasdaq. But the other indexes have begun a serious game of catch up.)
Here are some additional reasons why 2023 is shaping up to be a historic bull market.
Peak Inflation Is Behind Us
Last week’s better than expected Consumer Price Index (CPI), and Producer Price Index (PPI) confirmed that inflation is on the decline.
It’s still too high. But it’s definitely moderating with core (ex-food & energy) CPI (retail inflation) at 5.3% y/y vs. last year’s peak of 6.6%, while core PPI (wholesale inflation) came in at 2.8% y/y vs. last year’s peak of 8.2%.
And while last month’s Personal Consumption Expenditures (PCE) index (the Fed’s preferred inflation indicator), ticked up from the previous month, the core y/y rate was down from last year’s peak (4.7% vs. last year’s 5.3%), just like the CPI and PPI. And the Fed’s latest forecast is for core PCE to fall to 3.9% by year’s end, and 2.6% in 2024.
With inflation on the decline, the Fed hitting pause at their latest FOMC meeting, and it looking like we could be just 1 or 2 more rate hikes away from being done, the market has been rallying in anticipation of this rate hike cycle coming to an end.
Moreover, while the Fed has said they are not expecting to cut rates this year, they are forecasting a -1% cut in rates in 2024, and another -1% cut in 2025.
And all of that is bullish for the market.