So far, stocks have been recovering from last year’s bear market. The Nasdaq has been the big winner as it rides tech stocks to a 20% gain on the year. The benchmark S&P 500 index is up 8%. And the Dow Jones Industrial Average is flat year to date. Technology stocks, particularly those associated with artificial intelligence, have experienced the biggest rally while financial and healthcare stocks continue to lag the broader market. Still, there are plenty of risks. From a potential debt default and weak economic growth in China, to a potential recession and ongoing geopolitical issues. For these reasons, it is important to remain vigilant and stay on top of developments related to the stock market and economy. Here are seven top stock tips for June 2023.
Beware A Bubble Forming In Tech Stocks
Technology stocks have come roaring back this year, driven higher by artificial intelligence (AI). However, the bull run in tech stocks has been so strong, that some on Wall Street are now warning that a bubble is forming. Consider that the share price of Nvidia (NASDAQ:NVDA) is up 110% year to date, Meta Platforms (NASDAQ:META) is up 98%, and Microsoft (NASDAQ:MSFT) is up 30%. Even AI start-up C3.ai (NYSE:AI) has seen its stock rise 140% in the year.
Investors should remain prudent with tech stocks. Enjoy the current rally but be mindful of any sudden and sharp downturns in technology stocks. The market for tech stocks is starting to get frothy and any mention of the term “AI” is starting to drive stocks higher. These are usually signs that irrational forces are starting to creep in and things could get volatile in the coming weeks and months. When in doubt, stick with established long-term companies that are profitable. As always, there will be winners and losers.
Be Aware the Bank Crisis Might Not Be Over
JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon has warned the banking crisis may not be over. In fact, the failures of several regional U.S. banks may just be the first wave in a prolonged shakeout in the banking sector. Especially if interest rates remain elevated for an extended period, or if the U.S. Federal Reserve raises rates even more.
Dimon most recently warned that souring commercial real estate loans could pose major challenges to some U.S. banks. He noted, “You’re already seeing credit tighten up because the easiest way for a bank to retain capital is not to make the next loan.” This could be potentially bad for the U.S. economy and another blow to the banking sector and bank stocks, which are already among the worst-performing securities this year.
Should more trouble arise, look for bank and financial stocks to trend lower, including credit card companies such as American Express (NYSE:AXP) and financial services company Charles Schwab (NYSE:SCHW).
Keep An Eye On Pharma Stocks
Several catalysts appear to be looming on the horizon for pharmaceutical stocks. One is a wave of weight loss medications that analysts expect to be the new blockbuster drugs, likening them to the strong sales seen in erectile dysfunction and hair loss treatments. The other potential catalyst could be a renewed upsurge in Covid-19 cases around the world, with China saying it is bracing for a new wave of Covid-19 infections that could see as many as 65 million cases per week by the end of June.
The weight loss medications will benefit pharma companies that make them such as Eli Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO). When it comes to Covid-19 outbreaks, any major recurrence would benefit the companies that manufacture the leading medications against the respiratory disease, Moderna (NASDAQ:MRNA) and Pfizer (NYSE:PFE). There are rumors that China is considering approving Moderna and Pfizer Covid-19 vaccines for use in the country of 1.4 billion people, which would be a boost to sales.
The IPO Market Should Recover
The market for initial public offerings (IPOs) has been in the doldrums for two years now following a frenzy of new stock offerings during the heady days of the Covid-19 crisis in 2020. In 2022, the total worldwide value of IPOs, including special purpose acquisition companies (SPACs), was $170 billion, down 72% from a year earlier, according to White & Case law firm. In this year’s first quarter, global IPOs totaled $26 billion, including SPACs, down 53% year-over-year.
The good news is that the IPO market is expected to recover in this year’s second half, aided by some eagerly anticipated stock issuance. Potential high-profile IPOs include British chipmaker Arm, a deal that has been pegged at $10 billion, as well as Irish e-commerce company Stripe and U.S. social media firm Reddit. These companies, and others, have been musing about going public for some time, but have had to put off their IPOs due to unfavorable market conditions. That could change in the coming months.
Gold Prices Could Push to Higher Highs
Gold prices continue to hover around $2,000 an ounce and near an all-time high of $2,072.49. Concerns about the banking sectors in both the U.S. and Europe and growing fears of a global recession are driving investors to buy gold, which is considered a safe-haven asset during times of stress and uncertainty. The elevated price is good news for gold miners and jewelers, such as Barrick Gold (NYSE:GOLD) and Signet Jewelers (NYSE:SIG).
However, gold is not the only precious metal that has climbed higher this year. The price of silver and palladium have also risen sharply, with silver now trading at nearly $24 an ounce. With the Fed Funds target rate now in a range of 5% to 5.25%, its highest level in 16 years, concerns persist about U.S. banks and a slowdown in the economy, which is expected to fall into a recession later this year. These concerns are leading investors to hedge their bets by putting more capital into gold.
Interest Rates Could Go Higher
Wall Street has largely been betting that interest rates will end 2023 at lower levels than today. Expectations are that an economic recession will force the Fed to cut rates by Christmas. That might prove to be wishful thinking given how stubborn inflation has been. Several prominent voices, including JPMorgan CEO Jamie Dimon and former Fed Chair Ben Bernanke, have warned that interest rates might actually have to be raised more in coming months to get inflation back down to the central bank’s 2% annualized target.
While the Fed has paused further interest rates for the time being, there’s no guarantee the central bank will begin lowering them this year or that it won’t resume hiking rates if needed. In neighboring Canada, the central bank paused interest rate increases before the U.S. only to find that inflation unexpectedly ticked higher in April of this year. Similarly, headline inflation also rose in the European Union in April. Should inflation begin rising in the U.S., the Fed may have no choice but to ratchet interest rates higher in the near term.
Traders See The S&P 500 Index Ending The Year Lower
Reuters just published a new poll showing that a majority of traders and market strategies expect the benchmark S&P 500 index to decline by year’s end. Factors that could pull markets lower in this year’s second half include elevated interest rates, troubled banks, and weak corporate earnings. Consequently, traders see the S&P 500 index ending the year at 4,150, down slightly from a recent close of 4,192.63, but still up 8% for the year.
The S&P 500 recently closed at a nine-month high after declining 19.4% in 2022. Reuters surveyed 43 strategists and traders, and most respondents said they expect U.S. stocks to be range bound between now and the end of August. The latest poll results are down slightly from a 4,200 year-end forecast issued this past February. Traders who were polled also said that they expect the Dow Jones Industrial Average to weaken in the second half and finish the year up a slight 2.8%.
On the date of publication, Joel Baglole held long positions in LLY, NVDA, and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
