It’s Friday, June 30, and for most consumers out there, it doesn’t mean much other than the Fourth of July is around the corner. However, active investors are wondering why stocks are up today.
June 30 marks the end of the second quarter and the end of the first half of 2023. On Monday, we’ll turn the page to the first trading session of the third quarter and the second half, and investors are anxious to see how the market handles the next few months.
So, why are stocks up today?
First, it helps that we had a decent correction coming into this week. The S&P 500 and Nasdaq — the leaders of the 2023 rally — dipped almost 3% and 4%, respectively, and both fell in five out of six sessions before bottoming on Monday.
However, the indices found their footing and began to turn higher this week. It helps that there are end-of-quarter rotations going on, and volume is likely starting to fade a bit as investors hone in on the weekend.
Further, one of the Federal Reserve’s top-watched inflation reports came out this morning. That’s as the Personal Consumption Expenditures (PCE) price index report was released at 8:30 a.m. Eastern and came in at or below economists’ expectations.
That has investors feeling a bit better about inflation and, thus, a bit better about the Fed’s rate hikes.
Why Else Are Stocks Up Today? Seasonality.
There are some other factors in play when it comes to why stocks are up on Friday.
First, momentum in the market has been really strong, particularly for the S&P 500 and Nasdaq. The indices are up 16% and 32% so far in 2023. They are outperforming the other major indices, the Russell 2000 and Dow Jones Industrial Average, by a wide margin.
The Invesco QQQ Trust Series QQQ (NASDAQ:QQQ) and SPDR S&P 500 ETF Trust (NYSEARCA:SPY) have performed well too, up 39% and 16%, respectively.
While there are clear concerns and headwinds — like worries over interest rates, inflation and the economy — there’s no arguing that momentum remains strong. On a monthly basis, these indices have rallied in four straight months. When the calendar shifts to July, bulls will look to make it five straight months.
Why? Seasonality sure helps.
July tends to mark the best month of the third quarter, although that also comes with the caveat that August and September can be difficult months.
More specifically, as the Stock Trader’s Almanac notes, “Over the past 21 years from 2002-2022 July’s first trading has the second-best record up 85.7% of the time on the S&P 500 with an average gain of 0.35% … Looking back even further to 1989, S&P 500 has advanced 88.2% of the time (up 30 times in 34 years) with an average gain of 0.50%.”
Notably, the stock market has a reduced trading session on Monday and is closed on Tuesday for the Fourth of July. Effectively, that gives investors just a three-day trading week. That should lead to low trading volumes. When combined with new quarterly and monthly inflows (from pension funds, 401Ks, etc.), this could allow equities to drift higher.
Perhaps today’s rally could be investors positioning ahead of next week.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
