July 2023 -Smooth Sailing (For Now)

First things first -we hope you and your family are having a great start to your summer and had an enjoyable 4th of July this past week.

In preparation for this month’s note, I reread my July 2022 note “Head fakes and falling Knives” (posted on our website under “Insights”) and boy, how things have changed.

At this point last year, we were deep within the most aggressive Federal Reserve rate hiking campaign since the early eighty’s, Inflation was still running hot and investor sentiment couldn’t have been more bearish.

However, today, we stand amidst a vastly different landscape with the Fed choosing to pause on another rate hike during its June meeting, inflation has declined significantly from its peak in June 2022 and the most recent U.S. Investor Sentiment survey released last week is reflecting 41.93% investor bullishness compared to 18.20% a year ago.

As of market close last night July 6th the Dow 30, the S&P 500 and the NASDAQ Indices have returned a positive 2.21%, 14.98% and 31.05% respectively with Dow 30 Index being the laggard -highlighting the divergence of performance between value and growth orientated stocks year to date -almost the exact opposite of 2022. Bonds have also performed much better this year than last with the Barclays U.S. Aggregate Bond Index returning 0.8% year to date compared to -10.03% at this point in the year last year.

It’s important to note, statistically, since 1980, when the S&P 500 Index is up 15% or more in the first half of the year (10 times since 1980), the second half of the year has followed suit every time (10 out of 10) with the index averaging a total yearly return of 23%.

Remember, the S&P 500 Index is the best reflection of the U.S. stock market as a whole since the index consists of the top 500 U.S. companies making up 70 to 80% of the total US stock market capitalization. Specifically, the top five companies that make up 22% of the Index being Apple, Microsoft, Amazon, Nvidia and Alphabet (Google) all of which we own individually within our portfolios.

All very encouraging data supporting our bullish case for continued positive equities performance heading into the second half of the year for stocks. So, you may ask, what could derail this bull market over the next 6 months?

We see three main challenges markets need to overcome for continued positive performance. #1 Employment drops/layoffs increase significantly (due to recession or fear of), #2 Corporate earnings crater (down 10% or more resulting in lower earnings per share warranting lower stock prices). #3 Interest rates move appreciably higher than expected.

The first two, we do not see a likely case for, given there are still 1.6 jobs available for every unemployed individual seeking work and corporations appear to be hoarding quality employees. Consumer demand remains robust combined with a still very tight labor market does not make for high concern. Leaving #3 significantly higher interest rates still being our main concern.

Even though the Fed paused on the opportunity to raise interest rates in June, we now believe there will be two more interest rate hikes in the near future. The next being July 26th where we expect another .25% increase and the last being another .25% on September 20th. If these are the last interest rate hikes in this cycle, then we do not see these as a meaningful increase as the Fed funds futures are already baking in the July .25% increase. However, if the Fed continues to raise further in October and December then it will prove to be problematic for equities.

Tactically, regarding portfolio management, we remain fully invested in portfolio allocations with minimal cash on the sidelines (where appropriate) and have continued to scoop up individual treasuries, CD’s, government agency and investment grade corporate bonds at Par with attractive 5% plus yield to maturities we haven’t seen in over a decade as we expect rates to decline in 2024.

We are mindful the summer months can be seasonally weak so a negative -5 to -10% correction could come at any time and should be expected. Given portfolio performance year to date, if you foresee yourself needing a material withdraw from your portfolio, please reach out as raising cash sooner rather than later makes tactical sense.


As always, we wish you and your family a great Friday evening, and a wonderful weekend!

Please reach out to us with any questions or comments you may have regarding your specific situation.


Jaran C. Day, Chief Investment Officer


Griffin Dalrymple, CFP®, Chief Strategy Officer