Gatherings at all levels in all major asset classes last week boosted year-to-date performance in markets around the world, based on a set of ETFs. The downside outlier: a broad commodity measure, which continues to show a moderate loss so far in 2023 as of Friday’s (July 14) close.
US equities continue to lead this year. The Vanguard Total US Stock Market Index Fund (VTI) is up 18.1% in 2023, well ahead of the rest of the pack.
“Equity strategists are raising earnings forecasts for the S&P 500 over the coming year faster than they are cutting them, pushing a key indicator that tracks the momentum of analyst revisions well beyond from its nadir in November”, reports Bloomberg. “After hitting negative 70% at the end of last year, this metric – which focuses on forward 12-month earnings per share – is closer to positive territory at minus 28%, the data shows. compiled by Bloomberg Intelligence.”
Corporate earnings could be a headwind, notes Jurrien Timmer, director of global macroeconomics at Fidelity. He advise that the valuation of the US stock market has become increasingly “disconnected” from interest rates. “But in recent months, stocks have moved away from the interest rate peg and instead focused on hopes of a recovery in earnings. This means that for this bullish pivot to be justified, earnings will have to Currently, the consensus estimate is that S&P earnings will contract 9% in the second quarter, then bottom out in the third quarter of this year, before recovering in 2024. If this is correct, then the upside stocks and the rise in P/Es we have seen since last October may be warranted and may continue.
Commodities are still the downside outliers this year. The WisdomTree Enhanced Commodity Strategy Fund (GCC) lost 2.8% in 2023.
Some analysts believe that the worst is over for commodities as a whole. Citibank analysts, for example, last week predicted that commodities looked set to stabilize after this year’s decline. Catalysts supporting this outlook include weather risks, other seasonal factors and year-to-date losses that may have gone too far.
From a technical perspective, commodities are already showing signs of stabilizing, based on the GCC. The ETF has rallied from its recent low and is trading near a three-month high. But until the fund can surpass its late 2022 highs – around 18.75 – the case will remain speculative/weak for commodities to break out of the flat/slightly negative channel that has prevailed for much of the past year .
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