•  Markets appear to be taking a much-needed breather over the past few weeks following what had been a surprisingly blistering rally in many of the Large Cap Growth names.  
• While some backing and filling is normal after a big run, this pause was especially muted until last week when Fitch downgraded the credit rating of U.S. debt.
• The downgrade was not especially meaningful since the S&P did the same in 2011 when the economy was in much worse shape. However, last week’s move by Fitch did give investors a reason to take profits.
• As a result, Tech saw its biggest weekly decline since March. It would not be a surprise if investors take a wait-and-see approach as they weigh the better-than-expected earnings and inflation data against the prospects of tighter financial conditions and the ultimate effects on the economy. 
• The hope is that the Federal Reserve has done just enough to bring inflation down without causing an outright recession – a scenario often labeled as a soft landing. 
• Most of the appreciation in equities has come on the back of P/E expansion. While earnings have come in better than expected, they are still relatively flat or down for most stocks.
• Technically, the markets continue to look good. After breaking out of a bottoming formation in a narrow fashion – where a limited number of Large Cap Tech stocks accounted for most of the gain – we have seen the rally expand to include a wider array of stocks.
• For now, the action in the market remains constructive, with the technicals leading the way. Fundamentally, it remains to be seen whether the elusive soft landing materializes, but markets appear to be pricing that in. 

CHURCHILL MANAGEMENT GROUP

Source: Churchill Management Group

info@churchillmanagement.com 

** This report is meant to inform the reader of our current market opinion, which we, as professional money managers, use in our decision-making. It should be noted that stock market and bond market data are subject to varying interpretations and any one interpretation will not necessarily guarantee investment success. The information obtained from the sources specified herein and used as basis for our current market opinion is believed reliable, but we do not guarantee the accuracy of such information.