Market Commentary: 2nd Quarter 2023

Stocks continued to climb in the second quarter.  The Standard & Poor’s 500, a measure of large domestic companies, gained 8.3%, while smaller domestic firms as measured by the Russell 2000 advanced 4.8%.  Foreign markets, generally speaking, rose more modestly as the Dow Jones World Index (ex US) was up 1.6%.  The technology heavy Nasdaq Composite turned in the most notable return of 12.8%.


Many market observers have been surprised by the resiliency of the equity markets.  With lingering inflationary pressures and Fed rate tightening, a looming banking crisis, another potential US debt default and considerable geopolitical threats, one might have expected stocks to retreat from first quarter gains. But the worst-case scenarios failed to materialize.  While Chairman Powell maintained a hawkish verbal posture, the Fed did “pause” at the June meeting.  Consolidation in the banking sector is not unlikely.  Even so, investor fears were calmed with virtually all of the major banks performing well in the latest annual stress tests.  Congress, last minute as always, came to an agreement on the debt ceiling.  And who could have predicted that the head of the Wagner Group would temporarily threaten a coup on Putin, somewhat diminishing his menacing stature?  Throughout the quarter, investor demand for equities stayed mostly positive.  The majority of investors seemed to buy into the notion that a recession, if or when it occurs, may be of the “soft landing” variety.


On the other hand, market doubters (bears) like to point out that the broad market indices are being propelled by a handful of big technology companies.  This group is made up largely of what used to be called “FANG” stocks (FB, AAPL, AMZN, NFLX, GOOG), but after dropping NFLX and adding three others (TSLA, MSFT, NVDA), are now called the “Magnificent Seven”.  The impressive rebound in these stocks after a painful drubbing in 2022, accelerated by the heady expectations surrounding generative artificial intelligence (AI), represents the majority of the gain in the S&P 500.  If this enthusiasm wanes, pessimists suggest that the stock market will be in for a significant downdraft.


So what do we expect for the remainder of 2023?  Our regular readers know we avoid making short-term market predictions, as market timing accurately and consistently is impossible.  Investment success is most often achieved by adhering to one’s thoughtfully structured long-term portfolio.  However, if forced to comment, we would point out that, year-to-date, the equity market has already exceeded the long-term historical average. Headwinds still exist, and investors can earn roughly 5% in a money market with no principal risk and complete liquidity.  For investors with a diminishing investment time horizon, this could be an opportune time to revisit one’s Target Asset Allocation to assure expected return and volatility characteristics are consistent with one’s financial goals.


Please know that we welcome your calls, emails, texts, etc.  And, as always, we adhere to our discipline of strategic asset allocation and style diversification; a strategy designed to mitigate overall portfolio volatility and enhance long-term returns.