VettaFi Voices On: What’s Ahead for Economy, Markets?

This week the VettaFi Voices discuss what lies ahead for the U.S. economy and U.S. markets. Consumer confidence ticked up significantly from 102.5 in May to 109.7 in June. It hasn’t been this high since the first month of 2022. A day after that news was released, Jerome Powell said there were likely more rate hikes ahead. That’s largely because of the relentless strength of the U.S. labor market. Inflation data right now seems uncertain — is it cooling or not? The Conference Board LEI is apparently indicating a recession. However, quite a few market participants say we may have dodged it — at least for now. Also, SPY is up 15% as we head into the end of the first half. The data is all over the place. Is there any consensus to be found among the VettaFi Voices as to what we can expect?

Todd Rosenbluth, director of research: VettaFi held a webcast with WisdomTree experts for advisors this week. It asked, “Will the Fed push the economy into a recession?” Sixty-one percent of respondents chose “Yes, we may be in one already.” Only 39% chose “No, the soft landing will be achieved.” I don’t know [if] I agree with the majority, but that might be more hopefulness. Inflation has cooled, and it seems likely the Fed only paused its rate hiking program. It will likely raise rates further, not cut them in the second half.

However, in June, we saw investors return to putting fresh money into equity ETFs on optimism for the second half of 2023. The Vanguard 500 ETF (VOO) had pulled in $5.6 billion alone and now has $14 billion for the year.

Mega-Cap Performance Fading

But there’s also demand for the Invesco S&P 500 Equal Weight ETF (RSP). The equal-weight version of the 500 has pulled in over $4 billion. I view RSP demand [as supporting the idea]that investors believe the mega-caps that drove the market for much of the year will continue to give way to other large-caps. This does not feel like recessionary times in the stock market. There’s market breadth. 417 stocks in the S&P 500 were up in June. The economically sensitive sectors — industrials and materials — are leading the charge.

Jen Nash, economic and market research analyst: Like Todd, I tend to lean away from the majority of respondents to that poll question. But I wouldn’t say I’m 100% convinced we aren’t already in a recession.

When you break down the June reading of the Conference Board’s consumer confidence index, the expectations index is still below the level associated with a recession within the next year, meaning most consumers are still anticipating a recession at some point over the next six to 12 months. With that being said, consumers are feeling optimistic about labor market conditions. They are also hopeful that inflation will continue to decline. Compared to other recessions, the current reading is not recessionary.

VettaFi Voices On: What's Ahead for Economy, Markets?