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Financial Market Update – Week of 06/26

June 26, 2023

During the first six months of the year, investor sentiment has improved steadily, and the market’s mood can be judged by the low levels of volatility shown on the Volatility Index, among other things. Below is the latest. 

Major U.S. stock market indexes snapped their recent weekly winning streaks in quiet trade last week. The S&P 500 fell by 1.39%, the Nasdaq 100 traded lower by 1.28%, and the Dow Jones Industrial Average decreased by 1.67% for the week.

Volatility Index Muted

What is known as the “Fear Index,” the VIX, or Volatility Index, has returned to low levels not seen since January of 2020.

What This Means: When markets are full of fear, the $VIX tends to shoot upward, indicating higher levels of fear in the S&P 500, along with wider trading ranges. When the VIX is low, as it is now, the broad takeaway is that the overall investor psychology is that “the worst is behind us.” At present, this would refer to interest rates and inflation.

A low Volatility Index does not signal a green light for the U.S. economy in and of itself, but it does often signal that collective investor mindsets are not filled with worry. It can also signal complacency, and many times throughout history, markets tend to climb the “wall of worry” during periods of low volatility.

Fed Signals “Long Way to Go”

Data on the inflation front has continued to improve so far this year, but Federal Reserve Chair Jerome Powell seemingly looked to temper expectations last week. 

Powell said that getting inflation back down to its target of 2% “has a long way to go” in his semiannual testimony on monetary policy before Congress last week.

It does make sense. Sure, inflation metrics have improved, but 2% yearly inflation (the Fed’s target) is far away and could take some time:

  • Consumer Price Index (CPI) year-over-year was measured at 4% in the last reading for May. 
  • Core CPI ran at 5.3% year-over-year in May.
  • Core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation metric,  ran at 4.7% in May year-over-year.

Progress on the inflation front has been impressive this year, but the market expects a 71.9% probability of a 25-basis-point hike at the July 25-26 Fed meeting, as of last Friday’s market close. That equates to a 28.1% chance of no rate hike at the meeting.

This week, market watchers will focus on the Friday release of updated Core PCE data, analyzing the data for clues on how the Fed may be feeling later at its July meeting. 

Bitcoin Rises

Do you miss volatile markets? Bitcoin, the most heavily traded cryptocurrency, surged last week–rising around 17% and touching its highest level since April. The rise was partially tied to some potentially good news for crypto investors.

In mid-June, Black Rock applied for a spot Bitcoin ETF with the SEC to start the “iShares Bitcoin Trust.” Coinbase was named as the custodian of investor assets at the time of filing. In the past, regulators have denied applications for a Bitcoin spot ETF from other firms.

Theoretically, a spot Bitcoin ETF would make it easier for investors to invest in Bitcoin, creating more inflows to the asset. Bitcoin seemed to trade better when interest rates were lower. At the time of writing, spot Bitcoin was trading near $30,400, well below its all-time high north of $60,000 in 2021.

A Timely Reminder

Inflation, interest rates, the Fed, volatility, etc., may dominate the conversation, but the most underrated aspect of the markets is time. As long-term investors, time is our greatest asset.


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