Stock Market Optimism for the Third Quarter
Stock markets have had a surprisingly strong start to the year, but whether this trend will continue is uncertain as investors enter into a seasonally weak period for markets. Despite worries of a recession and the Spring regional banking crisis, the first half of 2023 saw a tech-led market surge with the S & P 500 and Nasdaq Composite indexes soaring almost 16% and 32%, respectively. Even the Dow Jones Industrial Average, with few tech stocks, managed to gain 3.6%. Now, investors are wondering if this growth will continue into the third quarter and if it will extend beyond technology.
A Broadening Rally
So far, only a handful of tech companies have contributed to the market gains this year, with Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla accounting for 80% of the gains in the S & P 500. On average, these stocks have each jumped by 86%, with Nvidia alone up nearly 200% fueled by AI exuberance. However, for the third quarter, Wall Street is hoping for more evenly distributed gains across the market. This would signal a more sustainable rally and benefit investors who have more diversified portfolios.
Healthcare Looks Promising
Harris Financial Group’s managing partner, Jamie Cox, finds healthcare “particularly attractive” for the third quarter, noting that the impact of artificial intelligence on the sector is “highly underappreciated.” Cox expects the productivity impact of AI in drug development to benefit the healthcare sector the most. Despite this potential, the S & P 500 health sector is down almost 3% this year. Cox believes that the future of healthcare is bright due to R & D advancements and the growing influence of AI.
Concerns Ahead
While optimism exists for the third quarter, there are also concerns. Historically, the summer months and early fall are lackluster periods for markets, especially in the tech sector. Additionally, the possibility of the Federal Reserve raising interest rates raises uncertainty, and the upcoming second-quarter earnings season is not expected to impress. However, if data continues to indicate that a recession may be further off than expected, equities could experience a positive period.
Week Ahead Calendar
Next week marks the start of July and the third quarter of 2023. It is expected to be a holiday-shortened week with relatively light economic data. The jobs report for June will come on Friday. Markets will be open for just a half-day on Monday and closed on Tuesday for Independence Day, resulting in a 3.5-day trading week.
Week Ahead Calendar:
- Monday
- 9:45 a.m.: S & P Global manufacturing PMI (June)
- 10 a.m.: Construction spending (May)
- 10 a.m.: ISM Manufacturing PMI (June)
- Tuesday
- U.S. markets closed for July 4th holiday
- Wednesday
- 10 a.m.: Durable goods orders (May)
- 10 a.m.: Factory orders (May)
- 2 p.m.: FOMC minutes
- Thursday
- 8:15 a.m.: ADP private payrolls (June)
- 8:30 a.m.: Initial jobless claims (week ended July 1)
- 9:45 a.m.: S & P Global services PMI (June)
- 10 a.m.: ISM services PMI (June)
- Friday
- 8:30 a.m.: Nonfarm payrolls (June)