Economic resilience extends late-cycle rally through June and first half of 2023.
U.S. market rallied past trading range
The S&P 500 Index broke out of its 3800-4200 trading range and entered a technical bull market after returning over 24% since hitting a low in October. While the performance of AI exposed mega-cap technology companies has led the markets, the rally has recently broadened with the equal-weighted index outperforming the market-weighted index in June, pointing to an improvement in breadth and potential for continued upside.
Market strength buoys investment sentiment
Over the course of the past few months, market sentiment has shifted from having more investors in the bearish camp, to having the majority of investors turning bullish. In June, bullish sentiment was at its highest level since November 2021. In other words, this is the most positive investors have been on the markets in almost two years.
How sustainable is this rally?
The question going forward is whether the equity rally will continue. On this front, we believe there is scope for economic data to remain strong and continue to support equities over the near term. Based on excess savings, a tight labour market, reasonable equity valuations and a low bar for earning expectations going forward.