[Market Outlook] Hello Summer!

After a Good Six Months, What’s Next? [Company Logo] Hello Summer! After a Good Six Months, What’s Next? By Donn Goodman and Keith Schneider [image] Happy start of the summer season Gaugers. For many of us, this is the best time of the year with warmer weather, family vacations, outdoor activities, and beautiful summer evenings spent with friends outside. Having grown up in the Midwest, I remember from an early age, spending long summer days playing sports and goofing around with friends until the sun went down. Ohio has a time advantage due to its close proximity to central standard time. The sun doesn’t set during summer until well after 9:00 pm. I grew up west of Cleveland, near the country. I vividly recall the enjoyment I felt riding thru the farming areas as the corn stalks were sprouting up. My grandmother (from the old country) loved fresh fruits and vegetables and I would drive her to the country area so she could purchase fresh fruits and vegetables directly from the farmers. I remember eating a freshly picked juicy peach that is only a gift from nature. In the past 20 years, I have had clients who were in the heart of farm country down in Southern Ohio. I especially enjoyed driving to their meetings during the summer month. I would take the back roads that would take me directly by the corn stalks and spread out farming communities. I guess I have always equated fruits and vegetables with summer. I share this with you because we are sitting on the precipice of a potential disaster. Corn, soy, and wheat prices have been soaring this past month as growing conditions across the Midwest have rapidly deteriorated due to the lack of rainfall during late May and into June. See graph below: [image] This was echoed by numerous people this past week. Here is but one of the many that I read: [image] Corn growing conditions have been terrible in Illinois, the second biggest corn producing state. About 36% of the state’s crop was rated good to excellent for the week ending June 18, down 12 percentage points from the prior week. (that means 64% was rated below good). The latest U.S. Drought Monitor Map reveals Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio and Wisconsin, often called the “Corn Belt” states, are experiencing “moderate drought to exceptional drought” The timing of the worsening drought is stressing young plants. This weekend the region is getting some much-needed rain. Let’s hope it helps get us out of this dire situation. What does this have to do with a Market Outlook? Many of our longtime readers of this weekly commentary may recall that during the summer of 2022, we discussed and posted tables indicating that the cost of food (broken down from eggs to vegetables to meat) was soaring. This has been one of the more persistently nagging parts of the CPI (Consumer Price Index), and one that both Mish and I continue to believe will persist. We don’t see these inflationary pressures coming down anytime soon. Prices of wheat futures are up 20% on the month (June), soy futures are up 14%, and corn futures are up 13%. See graph below: [image] The persistent elevation of food prices will undoubtedly make the Fed’s job much harder. This is why the statistics are reported as overall CPI and then ex the variable Food & Energy costs. Try telling Americans who are finding it increasingly difficult to make ends meet that food prices are not only going to stay high but may go higher due to a shortage of corn, soy, and wheat this summer. They would tell you there is no such thing as EX- FOOD & ENERGY. As a subscriber of our investment strategies, you may already be aware that we put on a trade this past week in Agriculture. If the drought conditions and accompanying price acceleration continue, that should be a winning trade. The Fed Speaks. You may recall that we covered, in great detail, what Chairman Powell and other Fed Governors said after they SKIPPED raising rates at their recent Fed Open Market Committee (FOMC) meeting earlier this month. If you did not get a chance to read last week’s Market Outlook, [click here to review it](=). As we expected, Chairman Powell’s hawkish testimony to Congress this past week was littered with references to the majority of Fed Governors believing that more interest rates are likely. The investment community finally got the message that there will BE NO RATE CUTS in 2023. Additionally, central banks in Europe, Australia, and the UK rose rates this past week. This was on the heels of higher-than-expected readings on inflation in their countries (especially the UK, who is feeling the negative aftereffects of BREXIT). [image] The Resilient Markets The Fed’s hawkish tone this past week took some of the wind out of the market’s forward momentum, and for the first time in many weeks, the markets closed down on the week. See graph below: [image] The Markets are coming off a good six-month run! Can this continue? We would like to review some good graphs/charts that show just how much strength and momentum the stock market continues to have. Then we will explore what might come next. Even though the market was down on the week, it still sits at a 52-week high. See graph below: [image] Interesting that the stocks doing poorly so far in 2023 are the ones leading this slight contraction this week in the markets. See graph below: [image] The Stock market has followed the Bull-Bear Sentiment Over the past year, we have often cited the AAII Bullish-Bearish sentiment and how it was stuck (for a long while) in the heavy bearish camp. As shown in the graph below, the difference between the Bulls and the Bears has grown more positive over the last 6 months, and you see how it tracks with the S&P 500: Use the links below for the sentiment chart and to continue reading about economic indicators, sector rotation, how AI is influencing the market, and the Big View analysis and video by Keith. [Click here to continue to the FREE analysis and video.]() [Click here to continue to the PREMIUM analysis and video](=). Best wishes for your trading, Donn Goodman CMO, Market Gauge Asset Management Keith Schneider CEO, MarketGauge P.S. When you’re ready, here are 3 free ways we can help you reach your trading goals… - [Book a call with our Chief Strategy Consultant](=), Rob Quinn. 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