The U.S. has avoided another debt disaster…
As regular readers will know, I was more worried than most about the game of “Chicken Run” in Washington over the debt ceiling.
But last week, the game ended without casualties.
Congress voted on the deal House Speaker Kevin McCarthy and President Biden hammered out. McCarthy still has his job (for now). The threat of a U.S. debt default has passed. The debt ceiling won’t be a live issue again until 2025.
Now that the drama has passed, let’s check in on how the stock market… and the economy… are doing.
There are lots of stories we can tell to answer these questions. And stories – whether true or false – are how we process the world.
But today, I invite you to set stories aside, and stick to cold, hard facts instead.
As you’ll see, when you do that, a surprisingly bullish picture emerges for the rest of 2023.
Cold, Hard Fact No. 1 – The stock market is rallying…
The Vanguard Total Stock Market ETF (VTI) tracks 3,895 small-, medium-, and large-cap U.S. stocks.
It’s the broadest measure of the U.S. stock market you can find.
And since it bottomed last October, VTI is up 18%
The common definition of a bull market is a 20% rally or more from a bottom in stocks. So, we’re on the cusp of a new bull market.
Cold, Hard Fact No. 2 – Inflation is cooling…
That’s going by the Consumer Price Index (“CPI”). It’s the government’s main inflation gauge.
In April, the CPI had risen 4.9% over the past 12 months.
That’s a lot…
But it’s down from the 9.1% annual rate it peaked at last June.
And 3- and 6-month inflation rates were also way down in April versus last June.
Said another way, the inflation rate today is roughly half of where it was last June.
If it continues to fall at the same rate as it has fallen over the past three months, it’ll be down to nearly 3% by December.
Cold, Hard Fact No. 3 – Jobs growth is strong…
Jobs growth is the main engine of the economy. And right now, it’s strong.
What you’re looking at the monthly change in non-farm jobs over the past 30 years.
The U.S. economy added 339,000 new non-farm jobs in May. That’s down from its peak of 904,000 new jobs added in February 2022. But it’s still well above the average 157,000 added every month going back to 1993.
The bear market may already be over…
Longtime readers may recall my January 30 dispatch. It was titled “The Bear Market May Already Be Over.”
I put forward what was a contrarian take at the time…
2023 could end up being a very good year for the stock market.
I know that sounds crazy, given all we’ve been through… and given all the gloomy headlines.
But I hope you’ll at least stay open to the possibility that the bear market is already in the rearview mirror.
Six months later, and we still haven’t revisited the October low for stocks.
There are good reasons to be optimistic about the rest of 2023…
As I covered in more detail here, stocks tend to do worse when inflation is rising. They tend to do better when inflation is falling.
Recent history is no different…
Inflation peaked last June. And the stock market bottomed four months later.
That wasn’t a coincidence.
It was an acknowledgement by investors that rising inflation was no longer a threat… and that it was time to get back into stocks.
Not everyone got the memo. But enough investors did to push the market higher.
What about the coming recession?
A lot of folks are worried about the prospect of a recession. And certainly, that’s the consensus view right now.
But it’s my experience than when everyone thinks the same way, something else tends to happen.
There are plenty of stories about a looming recession… a crash… even utter calamity. They’re captivating and dramatic.
But if we focus on cold, hard facts, what we see is a rising stock market, cooling inflation, and strong jobs growth.
That’s bullish, not bearish, for the stock market. If it holds, last October’s bear market bottom will, too.
Editor, The Daily Cut