By Steve Dinnen
It’s time for our mid-year review of the economy and markets. Sure, it’s just a tad past mid year, but I was on vacation and hope you were, too — enjoying some of the money you’ve made in the stock market this year.
In sharp contrast to the dud that was 2022, this year has been great — at least so far. The NASDAQ index shot up 38.8 percent in the first six months of the year, beating its own performance even during the tech boom of the 1990s. That’s a big turnaround from the 33.1 percent dive it took over the course of 2022.
The S&P 500 Index stocks did well, too, rising 16 percent in the first half of 2023 (after falling 19.4 percent in 2022). The Dow Jones Industrial Average rose, too, but just 3.8 percent (after sagging 8.8 percent in 2022).
NASDAQ is tech heavy, and a few mega-cap players in that space — especially a few some that involve artificial intelligence — seem to have pushed its climb. Among the biggest winners in the first half of 2023, three are in the chip business and tied to AI: Nvidia, (up 190 percent), Palo Alto Networks (up 83 percent) and Advanced Micro Devices (up 76 percent). Two cruise lines rode the rising tide, too: Carnival (up 133 percent) and Royal Caribbean (up 111 percent).
Marci McGregor, who leads portfolio strategy at Merrill and Bank of America Private Bank, said it’s too soon for AI to be driving widespread corporate profits, but still. “Investors wanted exposure to AI, the new shiny thing,” she said in a mid-year outlook broadcast. She added that she’d like to see broader participation in the market, and if certain factors play out, small-caps may join in the fray.
Michael Gaden, head of U.S. economics at BofA Global Research, set the scene by noting that the anticipated recession seems to keep getting pushed further into the future. He predicted that it would hit in early 2024 but it would be very mild.
He said markets — actually, the entire economy — have been “more resilient to interest rate hikes than we expected.” Remember that we’ve seen a spectacular rise in interest rates over a very short period of time, from basically zero in March 2022 to 5.5 percent today. That’s slowed activity in housing, construction and consumer spending, but Gaden said there have been “no major imbalances.”
Inflation hasn’t completely subsided, but at 2.9 percent it’s way off its 9 percent peak a year earlier. Gaden said 2.5 percent is attainable.