The Longest Day

By Aoifinn Devitt, CFP® – Chief Investment Officer

On this day, June 21st, the longest day of the year in the Northern hemisphere, it is normal to think about cycles. The cycle from light into dark, the pull of the seasons and the passing of time. This summer solstice it might seem appropriate to reflect on a recession that has so far barked but not bitten, on the regional banking brands that won’t see the year out and on what our lives looked like when we weren’t obsessed with natural language processing. It was not so long ago!

As the Fed takes an early summer breather, equities are remaining subdued in terms of volatility.

The chart below shows the volatility in equity markets, which remains low relative to its five year trend:

Performance has remained strong, with the US stock markets pushing past 14 month highs and there is renewed evidence that the rally is broadening beyond a handful of tech names. This was substantiated by evidence although that the Russell 2000 smaller companies index and equal weighted S&P had outpaced the mainstream index month to date.  There are suggestions that with market strength as it is (up 20% from October lows) and a Fed pause, consumer sentiment is finally starting to believe the hype and turn to positive. We are hearing again of renewed FOMO (Fear of Missing Out) which was the hallmark of the post-COVID bull market in equities; now that it is safe to go back into the water – is it safe to stay out of it?

Again, there is an unusual amount of focus on a Fed Chairman’s press conference on Wednesday in order to assess the direction of travel from here. Other worries are around China’s post-COVID recovery which is singularly lackluster – in stark contrast to Japan which is fulfilling its promise of the land of the rising sun – or at least rising stock markets – with its shares at a 33 year high and up over 28% for the year. I asked some Japanese experts about what it was that had caused Japanese shares to finally – after decades of wishful thinking – fulfill their promise.  Interestingly, there was no single thing to point to – maybe the fact that the economy had persistently low inflation – for years a problem and now, maybe, a relative advantage, or the fact that corporate governance initiatives and the principal of putting shareholders first was finally at the forefront of discussion. Or it could be that markets are more “zero sum” than we like to think and that China’s loss is Japan’s gain for investors suffering from non-US market FOMO.

The charts below show the equity market’s recent performance.  As we turn next week to the end of the first half of the year, we will be back with our first half round up.

Source: Morningstar as of 6/20/23



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