Weekly Market Brief: July 17, 2023

The Dow Jones Industrial Average closed at its highest level since last November as stocks continued their strong summer rallies. Even the Russell 2000 index of small caps has started playing along - it finished the week at the top of the leaderboard, rising 3.7%. Crude oil prices rose for the third straight week, and gold had its best week in two months, as the US Dollar Index dropped to new 52-week lows. 

Inflation is moderating even faster than many of the most optimistic forecasters had anticipated. During June, CPI slowed to a 2.969% annual rate, less than half of the rate at year-end, and just one-third the rate from a year ago, when prices pressures were at their peak. That 3.0% annual rate is still well above the Federal Reserve's 2.0% target, and it's weighed down heavily by energy prices, which are unlikely to repeat the last year's performance. However, shelter inflation (which accounts for roughly one-third of the CPI) has started trending lower, reversing more than 24 months of acceleration. And CPI ex-shelter has been running at the Fed's target since last September.

Market Internals

Breadth was a concern for most market watchers throughout March, April, and May, as the rally in growth stocks obscured lackluster performances from value-oriented names during the spring. In June, though, the advance broadened considerably. Three-quarters of the stocks in the S&P 500 are in technical uptrends on short and intermediate-term timeframes. Even on a long-term basis, breadth is quite healthy. Fully two-thirds of members in the benchmark large-cap index are above their 200-day moving average. 

Trends are healthiest in growth sectors - Information Technology, Consumer Discretionary, and Communication Services. In those 3 groups, the vast majority of stocks are participating in the market advance. Breadth within Industrials is similarly strong. Consumer Staples has shown the most weakness lately - only half of its members are in uptrends.

What's Ahead