Broker Check

Q2 2023 Market Commentary

July 14, 2023

The US stock market continued its winning ways in the 2nd quarter of 2023, as the S&P 500 index gained 8.3% to close out the first half of the year up 15.91%. And once again, a handful of mega-sized technology companies (7 to be exact) accounted for the nearly all of the index gains. Regardless of how it got there, the S&P 500 index has officially entered a new bull market, defined as a 20% rally off a previous low-water mark – which in this case occurred on October 12, 2022. International equity markets cooled off considerably versus their US counterparts in Q2, but added to YTD gains from a strong first quarter performance.

Conversely, the US bond market reversed course in Q2 after a strong start to the year, with the Bloomberg Aggregate Bond Index declining 0.84%. Only high-yield (i.e. ‘junk’) bonds gained value as that sector often trades more like stocks than higher quality bonds. The junk bond sector continues to trade at substantially overvalued levels and remains highly susceptible to crashing if and when the economy sinks into recession.

The month of June saw broader participation in market gains outside the technology sector, but not nearly enough to mute the ‘top-heavy’ impact of the seven stocks that had accounted for virtually all the market’s gains through the month of May. The 2023 YTD performance of the so-called ‘S&P 7’ stocks (Apple, Microsoft, Alphabet/Google, Amazon, Nvidia, Tesla, and Meta/Facebook) has driven the S&P 500 index’s 15.91% gain, owing to their huge size. These companies comprise 28% of the index’s total value – leaving the other 493 companies to split the remaining 72%. Equally weighting each of the 500 stocks produced a gain of just 6.39% in Q2. This has caused a good number of respected analysts to place an asterisk next to the “bull market” label in recognition that these few stocks are masking much weaker underlying market conditions.

On the economic front, the Fed’s decision to skip another interest rate hike in June shouldn’t be taken as a signal that their work on taming inflation is finished. While the financial markets welcomed the pause, inflation remains high – and consumers will eventually come to understand that lowering the rate of inflation (disinflation) does not mean that prices are coming back down to their former levels – they are just rising less fast from the current higher levels. Only a deep recession could bring about deflation – the lowering of prices. The historically rapid interest rate hiking cycle over the past 18 months has only recently begun to impact economic performance. An already stretched stock market should not be expected to keep on climbing in the face of a slowing economy, so investors need to resist the onset of FOMO (Fear of Missing Out) if they are tempted to chase the bull.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Market data provided by JPMorgan Asset Management and

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed

country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.

The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

Companies mentioned are for informational purposes only, and this communication should not be considered a solicitation for the purchase or sale of their securities.

The forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.