The first half of 2023 is complete! Despite numerous headwinds, economic and market results were better than anticipated – hiring remained strong, corporate earnings beat expectations, and the economy grew. During that time, the US debt ceiling resolved without crisis and the Federal Reserve paused its interest rate hikes. As we end the quarter, all major market indices are up for the year.
The US stock market enjoyed a relatively quiet quarter, rarely finding itself the subject of headline news. Markets traded in a fairly stable range while gradually moving upwards, resulting in a gain of +8.74% for the S&P 500. Non-US stocks experienced similar movement but didn’t benefit from the same rise, as much of the increase was driven by the US-heavy tech sector. Broad fixed income markets were essentially flat for the quarter, with prices declining slightly as yields and interest rates rose.
As we move into the second half of the year, the outlook is somewhat mixed. Inflation is still elevated, and fears of a recession have not abated. Economic growth appears to be slowing and the Conference Board’s Index of Leading (economic) Indicators declined for the 14th straight month. This is only the fourth time since 1959 that a streak of monthly declines has lasted more than a year and in all three prior streaks, the economy was already in a recession by the one-year point. The student loan payment pause will also soon come to an end, reducing spending power for a segment of the US population.
The good news is that inflation appears to be moderating, with food and energy prices in particular nearing the Fed’s 2% target rate. Gas prices alone are 30% lower than a year ago. At the same time, wage growth has remained strong and we’re seeing some of the largest movement in decades, recently amounting to an average 5.2% increase year-over-year. This increased purchasing power on a backdrop of stable prices could be a boon for the markets and economy.
The Fed is continuing to aim for a “soft landing” – slowing the economy enough to reduce inflation without inflicting too much economic damage. In the coming months, we’ll begin to see how successful these efforts have been.
From a stock market perspective, we remain well within historical averages. Last year’s bear market lasted just over nine months, essentially matching the historical average length for declines of 20% or more. Past recoveries have taken an average of nineteen months; progress looks good at eight months in and will hopefully continue.
As always, please let us know of any questions or concerns.
The PWM Team
