Earlier this week, Fitch Ratings downgraded its credit rating for the U.S. government from AAA to AA+. At first glance, this news sounds like a big deal. After all, aren’t U.S. Treasury securities considered low-risk investments?

There was a lot more data this week than last—and all of it was good. Everything we are seeing suggests that the economy is still growing, despite the headlines and fears. While there are certainly risks out there, the data is showing a resilience that no one expected, and that is a good sign for the future.

With the Fed’s regular meeting scheduled to conclude today, there has been a tremendous amount of commentary around what the Fed is going to do, what it should do, what it might do, and so forth. The consensus is that the Fed will raise rates 25 bps and then signal—something—going forward.

This will be a short post for a couple of reasons. First, there isn’t a ton of news to talk about and nothing really notable. Second, I want to head up to Maine for the weekend to eat lobster rolls and hopefully get some sun. Here’s hoping.

There was one word that mattered this week: inflation. The consumer and producer data reports were released, and they both said the same thing. Inflation is down, significantly. That news took interest rates down and the stock market up. It was a good week from economic and investment standpoints. To understand why, let’s dig in a bit.

What a year it has been for financial markets. There have been several negative factors in play, including a high-single-digit inflation print, the ongoing war in Ukraine, and several regional bank failures. Nonetheless, the S&P 500 finished the second quarter up 17 percent for the year. Go figure!

June was a strong month and closed out a generally solid quarter, especially for U.S. stocks. The U.S. indices were up significantly for the month, and both the S&P 500 and the Nasdaq showed positive gains for the quarter, although the Dow lagged. International markets also did well in June but ended the quarter flat. Fixed income, on the other hand, was much weaker for both the month and quarter.

Financial markets were clearly in a risk-on mode, which benefited riskier investments like tech stocks at the expense of more boring ones.

Throughout 2022, high levels of volatility across all major asset classes created a difficult environment. Fixed income investors were hit especially hard, as rising yields—brought on by surging inflation—weighed heavily on bond prices. Although not ideal, this helped set the stage for a more positive start to 2023.

Unlike last week, when there really wasn’t much news, we did get quite a bit of data this week. And it was all positive. 

Brad here. We just published our Midyear Outlook, and as you saw yesterday, we remain cautious about the market for several reasons. At the same time, over the longer term, the market does tend to go up—and even in the shorter term, there are alternative possibilities to consider.

For most people, that means focusing on the risk, and that’s fine—but it misses half, and possibly more, of the big picture. So, for a look at the potential upside, here’s a great piece from my colleague Tom Logue on why the market may well keep rising, especially over the next year.