Q2 2023 Market Update
Market Snapshot
*As of 06/30/2023
By the Numbers
  • The S&P 500 has climbed 16.9% with reinvested dividends this year, while the Nasdaq and Dow have returned 32.3% and 4.9%, respectively.
  • Markets have recovered much of their losses from last year with the S&P 500 now 7% from its all-time high.
  • Interest rates have also been steady after their sharp jump last year with the 10-year Treasury yield hovering around 3.8%, helping bond prices to recover as well.
  • It is worth noting the disparity in performance within the major indices. Much of the market growth this year has been led by a smaller sub-set of so-called ‘mega’ stocks, which have experienced strong rebounds from a tough 2022 and often amplified by artificial intelligence (AI) expectations. This outperformance of big tech companies is masking weaker performance of many smaller companies, so caution should be used when evaluating index performance.

Major stock market indices made significant gains in the first half of the year due to improving inflation, slowing Fed rate hikes, the absence of a recession, a more stable banking sector, and a strong rally in tech stocks.

Investors may be wondering whether this is the beginning of a new bull market or is instead a “bear market rally.” This is a shift from the concerns investors and economists faced at the start of the year when bear markets and recessions were top-of-mind.

The history of bear markets and short-term corrections shows that markets can turn around when it’s least expected, especially when investors are most pessimistic. This was true at the start of the year when few believed markets would ever recover, just as it was in April 2020, mid-2011, March 2009, October 1987, and so on. Each market downturn was driven by a real event such as a surge in inflation, the pandemic, the U.S. debt downgrade, the global financial crisis, or even Black Monday. However, in every case, investors expected these events to continue to worsen, even as fundamentals and valuations quietly improved.

By the time investors agree that a recovery has begun, significant gains have often been missed. This is not to say that downturns aren’t painful or that markets only go up. Rather, history shows that it’s often better to simply stay invested in an appropriately-constructed portfolio. In the worst case, investors who try to time the market and focus too much on short-term events completely miss the subsequent market recoveries.

Even though markets can swing in either direction over the course of days, weeks, and months, steady economic growth and improving corporate profitability tend to drive markets higher over the course of quarters, years, and decades.

Thus, the importance of the economy remaining strong cannot be overstated. Only a year ago, the prospect of the Fed achieving a “soft landing,” i.e. that inflation would improve without a recession, seemed far-fetched to many. While core inflation remains a problem, the fact that overall consumer prices have shown improvement at a time when unemployment remains at historic lows is positive for markets. If and when corporate earnings begin to pick up, market valuations could become more attractive over time.

Today, despite more stability in the financial system, there continue to be challenges in the wake of the bank failures earlier this year, most notably in commercial real estate. Upcoming refinancing activity could test the stability of the system as rates remain high and lending activity tightens. Additionally, while a debt ceiling crisis was averted, the issue has only been deferred to the beginning of 2025. In the meantime, geopolitics continue to be problematic as U.S. relations with China and Russia remain strained.

We remain vigilant over these topics and more as we monitor and adapt to market conditions in your portfolios.

Inflation is improving even as core measures remain sticky.

Sources: Clearnomics, Bureau of Labor Statistics
© 2023 Clearnomics, Inc

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. Past performance is not a guarantee of future results.

The market indices discussed are unmanaged. Investors cannot directly invest in unmanaged indices.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The market index is unmanaged.

The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.