Nasdaq on track for first-half 2023 win as markets react to volatility

Yahoo Finance Markets Reporter Jared Blikre breaks down the market action as we move closer to the end of the first half of 2023.

Video transcript

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BRAD SMITH: Tech stocks are slipping today as concerns arise around AI chip exports. So what should investors expect for the last few trading days of the quarter and the half? Yahoo Finance's Jared Blikre joins us in studio now. Hey, Jared.

JARED BLIKRE: Hey there. Well, I was taking a look historically. And when we have the NASDAQ up big in the first half of the year like this year-- and I did take a bit of time to explain this yesterday, so that video is out there-- depends on how volatile the price action is. But when it's been somewhat volatile like this year, it actually bodes well for continuation of the trend. It's when you climb that wall of worry, and you don't have those pullbacks that things get dicey in the second half of the year. So maybe things will be good. But I think there are a lot of variables here.

Nevertheless, we can see everything in the red over there on the left hand side of your screen, except for in Canada. We got the TSX up about 9 basis points. Just want to show a year to date chart of the S&P 500. And here is the local high. And you can see today's price action pretty close to that high here, so really just off of those highs of the year.

Also want to check in on the VIX, which has been depressed. Good for stocks. Low volatility means risk markets have room to run their way. We can also check out bond market volatility. And that ticked up. That's that little green bar yesterday but still camping out at the lowest levels since February. So not seeing a lot of volatile price action there.

And here is the 10 year T-note yield still in this trading range, as it has been for most of the month of June notwithstanding this little dip right here. So again, not making any waves. It's when these moves in the rates and also the US dollar index we see here break big to the upside or the downside, that we get some continuation. But for today, really not seeing too much.

I want to point out something. And that is that sentiment is getting stretched to the upside. And that is measured in a couple of different ways here. Let's see if we can pull this up. Here is optimism. This is Oxford Economics risk sentiment indicator. You can see it's a composite of 10 individual measured. And it is at the highest levels since 2021. And this is right around where a lot of stocks started peaking in that year.

And we can also check out the fear and greed index. It's a little bit more well known. It has ticked up to the greed zone, 76 out of 100. So we're in extreme greed, but it's not extreme, extreme greed, I guess, if that makes sense. And then you take positioning, positioning is getting up there as well.

So all of this points to the potential for an eventual reversal. But right now we are actually climbing that wall of worry. Finally, a note on the recession talk and the inversion talk. This note comes from Jonathan Golub. And I just wanted to point this out.

For now, the uninversion. For now Treasury futures imply that the curve will first uninvert in 2026. And this follows a sudden and radical change in positioning at the end of April. That's only a couple of months ago. Futures predicted an uninversion as soon as April 2024. And so that's when the economy gets back to normal.

Now it's being pushed back to 2025. And here's what Golub is saying. The recent shift in economic outlook at least partially justifies strong year to date returns. And that's because this makes intuitive sense as the yield curve steep ends when the Fed cuts rates in anticipation of a downturn. My question is if we're expecting this to happen in June of 2026, what happens in the meantime?

Are we going to have this Goldilocks economy where we have slightly below trend growth, but also low unemployment and lowering-- or lowering inflation? I don't think that can continue. So I think these bets are probably optimistic that we're going to see a Goldilocks economy evolve this long in time. But nevertheless, that's what the bond market is pricing in right now. So somebody is wrong.

JULIE HYMAN: Somebody is always wrong it seems, Jared. In fact, this was one of the things I wrote about in today's morning brief, so people can read more about that and that commentary that Jonathan made. Thank you so much. Appreciate it.