June 20th 2023, 4:26:24 pm
(about 3 months ago)
Stocks at one year high
North American stock markets continued the rally even after the US Federal Reserve cautioned against two more rate increases in 2023. S&P 500 and Nasdaq have advanced 23.3% and 41.2% from the trough and erased the Fed-induced bear market decline, now standing at levels seen in April 2022. Canada’s S&P/TSX Composite is up 2.83% in the past 12 months.
The US central bank kept the interest rates unchanged in last week’s meeting at 5.25% but the projection from the committee members shows two more hikes of 0.25% each by the end of the year. Although the inflation report of May showed price increases slowing down but mainly came from lower energy prices and the core inflation which takes out the effect of food and energy prices stands at over 4%.
The central banks around the world have long targeted the 2% annual inflation target but at current levels they are aiming to uncertain how long it takes, if possible, to push inflation back around the target.
Meanwhile, investors argue that higher inflation levels may be the new norm as the world’s population ages and China is less of a global engine for world economic growth, providing cheap goods and services to the world.
The markets expect two more rate hikes by the end of the year but many also call it a bluff by the Central Bank to control the prices. The stock market is shrugging off the hawkish stance of the central bank and the mega-cap shares are pushing indices to new highs.
While most of the companies are seeing their earnings shrinking and so should stock multiples through lower share prices, the promise of Artificial Intelligence is still giving the energy markets the need to advance.