Wall Street 2nd half outlook, plus Nasdaq 100 and interest rates on the rise again
The Sandbox Daily (7.10.2023)
Welcome, Sandbox friends.
After a refreshing week off at the beach, we are back to our regularly scheduled programming.
Today’s Daily discusses:
Wall Street outlook for 2nd half
Nasdaq 100 index reconstitution coming July 24
rising rates persist
Let’s dig in.
Markets in review
EQUITIES: Russell 2000 +1.64% | Dow +0.62% | S&P 500 +0.24% | Nasdaq 100 +0.06%
FIXED INCOME: Barclays Agg Bond +0.28% | High Yield +0.50% | 2yr UST 4.862% | 10yr UST 3.998%
COMMODITIES: Brent Crude -0.79% to $77.85/barrel. Gold -0.08% to $1,930.9/oz.
BITCOIN: +2.10% to $30,810
US DOLLAR INDEX: -0.31% to 101.955
CBOE EQUITY PUT/CALL RATIO: 0.52
VIX: +1.62% to 15.07
Quote of the day
“The best time to plant a tree was 20 years ago. The second best time is today.”
- Chinese proverb
Wall street outlook on 2nd half
Strategists across Wall Street were very bearish on stocks heading into 2023, so the strong market performance year-to-date has caught many flat-footed.
As the year crosses the halfway mark, strategists are very divided about where markets are headed next.
There’s a ~50% difference between the most bullish year-end S&P 500 target (Fundstrat’s Tom Lee sees it rising nearly +10% more to 4,825) and the most bearish call from Piper Sandler (down some -27% to 3,225). The range between the highest and lowest of year-end targets is the widest since 2003.
With the S&P 500 index up ~15% on the year and many strategists sticking to their original year-end targets (or making minor adjustments), the 2nd half outlook is the most bearish on record.
The good news? Each time strategists were net negative on the S&P 500 for the 2nd half, the market delivered positive returns.
Source: Bloomberg, Seth Golden
Nasdaq 100 index reconstitution coming
The Nasdaq 100 index is set to adjust the weightings of its 100 stock components.
Currently, the “Magnificent 7” stocks – Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL), Nvidia (NVDA), Amazon.com (AMZN), Tesla (TSLA), and Meta Platforms (META) – account for 55.5% of the index’s weighting. Nasdaq is looking to address this top-heaviness.
Based on Nasdaq 100 methodology, the combined weight of the five companies with the largest market caps will be set to 38.5%. This suggests some notable reductions in its largest components.
Megacap tech outperformance has helped propel markets higher in 2023.
Nasdaq will announce the new weightings on Friday, July 14, while the Nasdaq-100 special rebalance itself will take place before the market open on Monday, July 24, to "address overconcentration in the index by redistributing the weights."
Rising rates persist
U.S. interest rates continue to rise across the curve.
Rates across most tenors are challenging their March highs, or even the cycle highs from October-November 2022.
Interest rates are on the verge of breaking out after a period of contraction – and they would be doing so in the direction of an underlying uptrend. Many, however, expect rates to stall out in this general area.
While rising rates accompanied strong selling pressure for all asset classes last year, stocks don’t seem to mind in 2023. Likely because the stock market is a discounting mechanism and looking 6-12 months down the road when the Fed is likely done with their interest rate hiking campaign.
Perhaps risk assets have adjusted to a new rising rate regime.
Source: Beat The Bench, All Star Charts
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.