--- title: Kensington Market Insights - July 13 description: On Wednesday it was reported that inflation (CPI) fell to its lowest annual rate in more than two years during June, increasing 3% from a year ago, the lowest level since March 2021. image: https://blog.fulcrumeq.com/hubfs/Background%203%20NEW.jpg --- [![Fulcrum-Logo-White-1](https://blog.fulcrumeq.com/hs-fs/hubfs/Fulcrum-Logo-White-1.png?width=250&height=63&name=Fulcrum-Logo-White-1.png "Fulcrum-Logo-White-1")](http://fulcrumeq-8809078.hs-sites.com/v2) - [Insights](https://blog.fulcrumeq.com/insights) [![Client Portal](https://hubspot-no-cache-na2-prod.s3.amazonaws.com/cta/default/8809078/e61666c3-099f-4e48-854a-4c0ce5443fa0.png)](https://hubspot-cta-redirect-na2-prod.s3.amazonaws.com/cta/redirect/8809078/e61666c3-099f-4e48-854a-4c0ce5443fa0) [![Advisor Portal](https://hubspot-no-cache-na2-prod.s3.amazonaws.com/cta/default/8809078/974ea95f-199e-4ec5-81c4-86b6b82411c5.png)](https://hubspot-cta-redirect-na2-prod.s3.amazonaws.com/cta/redirect/8809078/974ea95f-199e-4ec5-81c4-86b6b82411c5) [![Fulcrum-Logo](https://blog.fulcrumeq.com/hs-fs/hubfs/Fulcrum-Logo.png?width=200&height=143&name=Fulcrum-Logo.png "Fulcrum-Logo")](http://fulcrumeq-8809078.hs-sites.com/v2) - [Insights](https://blog.fulcrumeq.com/insights) [![Client Login](https://hubspot-no-cache-na2-prod.s3.amazonaws.com/cta/default/8809078/c7b6705d-896d-4927-8005-eb1fdcff5316.png)](https://hubspot-cta-redirect-na2-prod.s3.amazonaws.com/cta/redirect/8809078/c7b6705d-896d-4927-8005-eb1fdcff5316) [![Advisor Portal](https://hubspot-no-cache-na2-prod.s3.amazonaws.com/cta/default/8809078/974ea95f-199e-4ec5-81c4-86b6b82411c5.png)](https://hubspot-cta-redirect-na2-prod.s3.amazonaws.com/cta/redirect/8809078/974ea95f-199e-4ec5-81c4-86b6b82411c5) **Menu** [![Client Login](https://hubspot-no-cache-na2-prod.s3.amazonaws.com/cta/default/8809078/c4655de3-d9ca-4758-9b28-bcaf2e724b3b.png)](https://hubspot-cta-redirect-na2-prod.s3.amazonaws.com/cta/redirect/8809078/c4655de3-d9ca-4758-9b28-bcaf2e724b3b) [![Advisor Login](https://hubspot-no-cache-na2-prod.s3.amazonaws.com/cta/default/8809078/e6d436f0-f2aa-4df7-be59-d8cae469522f.png)](https://hubspot-cta-redirect-na2-prod.s3.amazonaws.com/cta/redirect/8809078/e6d436f0-f2aa-4df7-be59-d8cae469522f) - [Insights](https://blog.fulcrumeq.com/insights) ![Background 2](https://blog.fulcrumeq.com/hubfs/Background%202.jpg "Background 2") # Insights & Manager Commentary # Kensington Market Insights - July 13 by [Craig Love](https://blog.fulcrumeq.com/insights/author/craig-love), on July 13, 2023 # Kensington Market Insights - July 13 Market Insights is a weekly piece in which Kensington’s Portfolio Management team will share interesting and thought-provoking charts that we believe provide insight into markets and the current investment landscape. **CPI Surprise** On Wednesday it was reported that inflation (CPI) fell to its lowest annual rate in more than two years during June, increasing 3% from a year ago, the lowest level since March 2021. On a monthly basis (MoM), the index, which measures a broad swath of prices for goods and services, rose 0.2%. The better-than-expected drop was a product of some deceleration in costs and an easy comparison against a time when price increases were running at a more than 40-year high. Unfortunately, that is about to change as we are about to pass the peak of the disinflationary base effects (chart below), which means unless MoM CPI stays below 0.2%, inflation will begin to head up again. Going from 9% to 4% was the easy part. 4% to 2% will probably be much more difficult to achieve. ![1 KAM-July13-1](https://blog.fulcrumeq.com/hs-fs/hubfs/1%20KAM-July13-1.webp?width=600&height=343&name=1%20KAM-July13-1.webp) *Source: BofA Global Investment Strategy, Bloomberg* **Fed Reaction** Despite the positive inflation reading, the Fed is almost assuredly still moving forward with additional rate hikes beginning this month at the July 26th FOMC meeting. So far this year equity markets have shrugged off higher interest rates, despite the higher borrowing rates they cause. Historically, the relationship between equity markets and 10-year Treasuries has tracked very closely, but this cycle has had a significant divergence (chart below). Time will tell if this is a decoupling of the relationship or if a correction in equities is in store. *![2 KAM-July13-2-1](https://blog.fulcrumeq.com/hs-fs/hubfs/2%20KAM-July13-2-1.webp?width=600&height=411&name=2%20KAM-July13-2-1.webp)* Source: Bloomberg, Tavi Costa **Q2 Earnings Season** Speaking of markets, earnings season is upon us once again, and expectations are that we will see negative earnings for the 3rd quarter in a row. For Q2 2023, the estimated earnings decline for the S&P 500 is -7.2%, which has been revised down from -4.7% at the end of March. One sector that is likely to come under significant pressure is retail. On Tuesday Redbook released their monthly retail sales report, which showed a contraction in YoY sales for the first time since the pandemic, and if we ignore the pandemic, the first time since the Great Financial Crisis in 2009 (chart below). ![3 KAM-July13-2-1-1](https://blog.fulcrumeq.com/hs-fs/hubfs/3%20KAM-July13-2-1-1.webp?width=600&height=347&name=3%20KAM-July13-2-1-1.webp) *Source: Redbook Research, US Census Bureau* **Market Impact** Looking ahead, it’s difficult to know what to expect from the market in the second half of 2023. Historically when the index has climbed more than 10% through June, it has typically been positive for the second half of the year as well, with a median return of approximately 10% (chart below), and only a handful of down years, with 1929 and 1987 being significant outliers. Strong First Half Historically Bodes Well for Investors *S&P 500 returns when the benchmark index climbs at least 10% through June* ![4 KAM-July13-4](https://blog.fulcrumeq.com/hs-fs/hubfs/4%20KAM-July13-4.webp?width=500&height=612&name=4%20KAM-July13-4.webp) *Source: Bloomberg* Over the longer term, however, it certainly appears a correction is in store. As you can see from the chart below, the deviation between equities and underlying economic growth is the most extreme it has been, at least dating back to 1950. Considering GDP drives earnings, an eventual reversion should be expected. ![5 KAM-July13-4](https://blog.fulcrumeq.com/hs-fs/hubfs/5%20KAM-July13-4.webp?width=600&height=339&name=5%20KAM-July13-4.webp) *Source: The Daily Shot* If a correction is inevitable, then the question is around timing. Can the market follow historical precedent and continue its rally through year-end, or will the pressure of higher rates lead to a correction in the near term? As always, the key is to remain nimble. At Kensington, we believe a tactical approach to navigating markets is critical to avoid significant portfolio drawdowns… whenever they arise. *Forward-looking statements are based on management’s then current views and assumptions and, as a result, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. This market insight is for informational purposes only and should not be construed as a solicitation to buy or sell, or to invest in any investment product or strategy. Investing involves risk including loss of principal.* [Source: Kensington Management](https://blog.kensingtonassetmanagement.com/insights/market-insights-july-13-2023)   Topics:[Manager Commentary](https://blog.fulcrumeq.com/insights/topic/manager-commentary)[Kensington](https://blog.fulcrumeq.com/insights/topic/kensington) - [Recent](https://blog.fulcrumeq.com/insights/kensington-commentary-2023-0-13-0#recent) - [Topics](https://blog.fulcrumeq.com/insights/kensington-commentary-2023-0-13-0#topics) - [Archive](https://blog.fulcrumeq.com/insights/kensington-commentary-2023-0-13-0#archive) - [Athena (3)](https://blog.fulcrumeq.com/insights/tag/athena) - [Brookmont (4)](https://blog.fulcrumeq.com/insights/tag/brookmont) - [Churchill (26)](https://blog.fulcrumeq.com/insights/tag/churchill) - [Kensington (22)](https://blog.fulcrumeq.com/insights/tag/kensington) - [Little Harbor Advisors (1)](https://blog.fulcrumeq.com/insights/tag/little-harbor-advisors) - [LMCG Investments (1)](https://blog.fulcrumeq.com/insights/tag/lmcg-investments) - [Manager Commentary (79)](https://blog.fulcrumeq.com/insights/tag/manager-commentary) - [Manager Spotlight (1)](https://blog.fulcrumeq.com/insights/tag/manager-spotlight) - [Optimus Advisory Group (1)](https://blog.fulcrumeq.com/insights/tag/optimus-advisory-group) - [Thompson Capital (1)](https://blog.fulcrumeq.com/insights/tag/thompson-capital) More... - [May 2023 (5)](https://blog.fulcrumeq.com/insights/archive/2023/05) - [June 2023 (5)](https://blog.fulcrumeq.com/insights/archive/2023/06) - [July 2023 (5)](https://blog.fulcrumeq.com/insights/archive/2023/07) - [September 2023 (5)](https://blog.fulcrumeq.com/insights/archive/2023/09) - [October 2021 (4)](https://blog.fulcrumeq.com/insights/archive/2021/10) - [November 2021 (4)](https://blog.fulcrumeq.com/insights/archive/2021/11) - [September 2022 (4)](https://blog.fulcrumeq.com/insights/archive/2022/09) - [October 2022 (4)](https://blog.fulcrumeq.com/insights/archive/2022/10) - [November 2023 (4)](https://blog.fulcrumeq.com/insights/archive/2023/11) - [March 2021 (3)](https://blog.fulcrumeq.com/insights/archive/2021/03) - [April 2021 (3)](https://blog.fulcrumeq.com/insights/archive/2021/04) - [September 2021 (3)](https://blog.fulcrumeq.com/insights/archive/2021/09) - [February 2022 (3)](https://blog.fulcrumeq.com/insights/archive/2022/02) - [November 2022 (3)](https://blog.fulcrumeq.com/insights/archive/2022/11) - [April 2023 (3)](https://blog.fulcrumeq.com/insights/archive/2023/04) - [August 2023 (3)](https://blog.fulcrumeq.com/insights/archive/2023/08) - [October 2023 (3)](https://blog.fulcrumeq.com/insights/archive/2023/10) - [December 2020 (2)](https://blog.fulcrumeq.com/insights/archive/2020/12) - [February 2021 (2)](https://blog.fulcrumeq.com/insights/archive/2021/02) - [July 2021 (2)](https://blog.fulcrumeq.com/insights/archive/2021/07) - [August 2021 (2)](https://blog.fulcrumeq.com/insights/archive/2021/08) - [March 2022 (2)](https://blog.fulcrumeq.com/insights/archive/2022/03) - [May 2022 (2)](https://blog.fulcrumeq.com/insights/archive/2022/05) - [June 2022 (2)](https://blog.fulcrumeq.com/insights/archive/2022/06) - [July 2022 (2)](https://blog.fulcrumeq.com/insights/archive/2022/07) - [August 2022 (2)](https://blog.fulcrumeq.com/insights/archive/2022/08) - [January 2023 (2)](https://blog.fulcrumeq.com/insights/archive/2023/01) - [February 2023 (2)](https://blog.fulcrumeq.com/insights/archive/2023/02) - [March 2023 (2)](https://blog.fulcrumeq.com/insights/archive/2023/03) - [May 2021 (1)](https://blog.fulcrumeq.com/insights/archive/2021/05) - [June 2021 (1)](https://blog.fulcrumeq.com/insights/archive/2021/06) - [December 2021 (1)](https://blog.fulcrumeq.com/insights/archive/2021/12) - [January 2022 (1)](https://blog.fulcrumeq.com/insights/archive/2022/01) - [December 2022 (1)](https://blog.fulcrumeq.com/insights/archive/2022/12) - [December 2023 (1)](https://blog.fulcrumeq.com/insights/archive/2023/12) More... ### Subscribe to Updates ![Fulcrum-Logo-White](https://blog.fulcrumeq.com/hs-fs/hubfs/Fulcrum-Logo-White.png?width=150&name=Fulcrum-Logo-White.png) 5465 Legacy Drive Suite 650 Plano, Texas 75024 Toll Free: [888.304.6942](tel:1-888-304-6942) Direct:[214.317.4293](tel:214-317-4293)   **[Form CRS](https://blog.fulcrumeq.com/hubfs/Regulatory/Form%20CRS%20Document.pdf)** [Disclosures](https://blog.fulcrumeq.com/hubfs/Regulatory/Website%20Disclosures.pdf) ### Connect with us Copyright © 2021 | Fulcrum Equity Management, LLC is registered as an investment adviser with the Securities and Exchange Commission (SEC), and only transacts business in states where it is properly notice filed, or is excluded or exempted from such requirements. 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