June Stock Market Outlook Takeaways:
- US stock market unable to break out of trading range, looking for economic rebound
- Growth stocks surge higher, good time to take profits as we now see better value elsewhere
- Technology sector becoming overvalued as stocks surge on excitement surrounding artificial intelligence
Trying to Break Through the Ceiling
The Morningstar US Market Index rose 0.45% in May and has risen a total of 9.07% for the year to date through May 31. Considering that we expect the US economy will be relatively stagnant over the remainder of this year, we suspect the market will be looking for a rebound in leading economic indicators later this year to begin the next leg up toward where we calculate intrinsic value.
The rally thus far this year has been heavily concentrated in the growth category, which has soared 19.29%, whereas core stocks have lagged, only rising 2.11%, and value has lost ground, at negative 2.23%.
Even more specifically, within the growth category, the technology and communications sectors drove the preponderance of the increase. In May, technology rose 10.32% and communications rose 6.00%. For the year to date, technology is up 33.70% and communications is close behind at 31.16%. Elsewhere, the consumer cyclical sector is the only other to post a positive return. In our 2023 Stock Market Outlook, we noted that these were the most and third-most undervalued sectors coming into the year.