After peaking in late July 2023, markets gave back a chunk of the year’s gains. The S&P 500 (SPY) closed at peaks not seen since June. This consolidation potentially erases the summer’s stock rally.
Last week, the SPY ETF added 0.79%. It trended higher after Jerome Powell’s much-anticipated speech at the annual Jackson Hole symposium. The Fed chair said that the central bank will maintain interest rates at high levels. It will raise rates if necessary. Powell also said that the effects of monetary policy take time to trickle through the economy. Expect tight credit conditions to show up in one or two years.
Hopes of a rate pause benefit stock markets, which trade on forward expectations. Despite a 15% YTD gain, the market has room to trend higher. Market sentiment is highly bullish. Investors are confident that the economic slowdown ahead is a soft landing. Without a recession, corporations would report slowing profit growth instead of negative growth or losses.
Investors should watch the biggest, strongest firms. In retail, Walmart (WMT) and Costco (COST) will thrive. In the financial sector, Visa (V) and Mastercard (MA) will outflank mature fintech firms like PayPal (PYPL). Established banks like Bank of America (BAC) will fare better than Affirm (AFRM) or Upstart (UPST).
