Line chart showing the index level of the S&P 500 Index from 2013 to June 2024. The S&P 500 Index peaked early 2022 and moved down for much of 2022. In late 2022, it traded in a wide range. The index rallied in 2023.
Line chart showing the U.S. Dollar Index level from 2013 to June 2024. In the first half of 2023, the dollar traded in a volatile range, but the trend has been for dollar weakness since late 2022 after 10 years of dollar strength.
Line chart showing West Texas Intermediate crude oil prices from 2013 to June 2024. Oil prices have risen significantly since 2020 but have declined after peaking in late 2022. Oil prices remain higher than 2020 lows.
Line chart showing year-over-year inflation from 2013 to May 2024. Inflation has come down meaningfully from its mid-2022 peak but remains above both the Federal Reserve’s 2% target and the trend from the past decade.
Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from January 1, 2013, to June 30, 2024. Consumer price inflation: monthly data from January 1, 2013, to May 31, 2024. The S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the U.S. stock market. The Consumer Price Index measures the average price of a basket of goods and services. West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing. U.S. Dollar Index (USDX) measures the value of the U.S. dollar relative to the majority of its most significant trading partners. This index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. Stocks may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Fed = Federal Reserve.
Super-cycle = If you look at commodity prices over the very long term (hundreds of years), it becomes evident that they tend to move in overall bull and bear cycles, some lasting decades. These are super-cycles.
Key Takeaways
- We believe the U.S. stock market is vulnerable to a pullback despite the recovery from its third-quarter 2023 slump, as it digests bumpy disinflation and the dampening effect on corporate earnings growth from a cooling economy.
- Raw materials prices are shrugging off the negative impact of a strengthening dollar because of tight supply conditions tied to a commodity super-cycle reacting to years of underinvestment.