Investors are optimistic

Today the SP500 made a new high today Monday 6/17.  Market optimism is at a high based on typical risk measurements such as the Volatility Index or VIX.  Investors are optimistic about at least one interest rate reduction and maybe two this year.  Three interest rate deductions next year are expected.  Stock splits are in the news especially in the semiconductor area-Broadcom and Nvidia and with the announcement and then subsequent split, the stock values soared again.  We know that stock splits technically just take the stock price and divide by the split number and have no impact on the actual value or price of the shares-or at least technically.  However, psychologically and historically investors like splits and shares have benefited.  And here we are with the results.  

From Barron’s 3 reasons markets can continue higher:  1. Artificial Intelligence.  2. Improving margins 3. Relatively easy money even with high interest rates private lending based on Bloomberg Financial Conditions Index that indicates relative ease of lending. The BFCI has only been lower 8% of the time meaning lending conditions have been easy only 8% of the time. The tradeoff is the 35% concentration of capitalization-based indexes in 7 stocks.  The question is will the rally broaden the market in general, especially mid and small cap stocks?  Also, the reason the VIX index is so low is that volatility has severely declined this year with daily market moves of 1% up or down from last year.  Option protection costs are very low indicating investor complacency in the market.  

We are well aware in regard to the controversies swirling around immigration we also are well aware of the economic impact of immigration.  Here is an article from CNBC about the economic impact of immigration:

  How immigrants are helping keep job growth hot while inflation cools.

Immigration, both legal and illegal, are major contributors to economic growth in general and Gross Domestic Product growth in particular.  Traditionally, immigrants take employment at the lower end of the economy.  Quoting CNBC 

“Recent immigrants have flowed disproportionately into the parts of the labor force that were particularly tight in 2022, contributing to labor supply in places where it was most badly needed,” Goldman Sachs analysts wrote in a note to clients in May.  This fact gets lost in the politics of our time. Just a reminder to consider both sides of the controversy.

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