Quarterly Market Review Q2 2023
The Importance of Your Credit Score
June 1, 2023
TrustWell Resource Guide
July 19, 2023
By Brett Freese
Going into April this year, most investment professionals, news sources, and investors were bearish or at best concerned about stocks (anticipating some big losses). Well, not only did those losses not occur, but US Large Cap growth stocks outperformed the rest of the market greatly. Specifically, US Large Cap Growth Stocks were up 12.12% for the quarter vs up 4.43% for US Large Cap Value Stocks.
This is why it is important to have a well-researched, strategic, diverse, and historically tested approach. Those individuals or fund managers that were shorting the market or had gone mostly to cash missed out on a strong quarter.
Economic & Investment Highlights:
- The Federal Reserve (Fed) for the past 18 or so months have been the main focus of the financial markets. The Fed will still be very important in the quarters to come, but the banking system stability, corporate earnings, geopolitical risks and even some political positioning with the 2024 election on the horizon have become more important. Interesting Note on the Federal Reserve: They did not raise interest rates in June, but are leaning towards two more 25bps raises over the next two or three meetings. This “pause” came even though many other central banks around the world continued raising rates in June. Reminder: The Federal Reserve has a dual mandate to achieve both stable prices and maximum sustainable employment.
- Inflation in rents, salary and some others areas are still very high, but there are more signs in inflation breaking down. The economy is looking at lower housing prices, lumber, oil and other areas. Employment is weakening, but is still at record highs.
- Fiscal Policies – The unprecedented spending in Washington will have long lasting effects on the borrowing cost of the US Government especially with interest rates going up. Student Loan Forgiveness was blocked by the Supreme Court. That ruling will put more pressure on discretionary spending that will need to go to loan payments in younger workers thus helping reduce inflation pressures.
- Recession Risks: Where do we go from here? No landing, soft landing, moderate landing, hard landing? Early in the year the stock market and the bond markets had priced in a Moderate Recession for good reasons: The Fed was still raising interest rates and there were many predicting corporate earnings to fall greatly and unemployment to rise. The markets have been positive this year due to economic resilience that jobs are still plentiful and corporate earnings and balance sheets remain strong. The strongest argument for a bear market in the 2nd half of 2023 is the possibility that the effects of more than a year of Fed rate hikes have not been fully felt yet.
- Geopolitical Risks: The continued war in Europe, China chip sale restriction policies, tensions over Taiwan, and others will continue to keep the financial markets on their toes. China’s economy reopened much faster than most thought it would and if that continues it will be a tail wind to the world’s economic growth.
- Artificial Intelligence (AI) has a great topic of investment discussion so far in 2023 and extremely difficult to determine the winners and losers of such disruptive technology.
- Most of major stock indices were all up this past quarter (see “Market Scorecard” below).
- Commodities were mostly down this past quarter, with Gold down approximately 2.96% price per ounce, and the broad basket of commodities was down 3.29% for the last 90 days. Oil was down 6.94% for the quarter and down 35.05% over the last 12 months. Note: Energy prices are very difficult to forecast due to many variables like, production, temperatures, and conflict. But, lower or stable prices at these levels will be very constructive in keeping inflation more in check.
- Bitcoin is up 7.64% for the quarter. Many investment firms have filed for investment instrument approval from the SEC. They have been turned down in the past, but there seems to be more confidence that approvals are coming alone with regulation.
Historical Stock Market Declines:
Market declines and inclines rarely look the same or even feel the same, but they do happen and the ups and downs are a part of the process – It is important to have a plan/strategy so emotions don’t dictate buying or selling.
A 5% or greater loss occurs about 3 times a year
A 10% or greater loss occurs about once a year
A 15% or greater loss occurs about once every 2 years
A 20% or greater loss occurs about once every 3.5 years
Please know that when stock prices go down the “market collapse gurus” receive the most air time. Likewise, when stock prices go up all the “bull market gurus” talk about how the market will continue to be up BIG. Please know that most “gurus” are great with hindsight to justify how important it is to have their voice heard.
Market Scorecard for the last 13 weeks ending 06/30/2023:
US Equities:
+ 8.74% S&P 500 (Index of the largest US publicly traded companies)
+ 5.21% Russell 2000 (Index of 2000 Small-cap US publicly traded companies)
Global Equities:
+ 3.37% Foreign Large – Morningstar Category
+ 3.82% Global Small/Mid Stock – Morningstar Category
US Bonds:
+ 0.22% Corporate Bond – Morningstar Category
– 0.40% Short Government – Morningstar Category
+ 0.13% Muni National Bond Index – Morningstar Category
Other:
+ 0.34% Global Bond – Morningstar Category
– 2.96% Gold Price
+ 7.64% Bitcoin
– 3.29% Commodities Broad Basket – Morningstar Category
Current Annual Money Market Rates ending 6/28/2023:
4.94% Schwab Value Money Market
4.83% Schwab Treasury Money Market
Market Indicators:
Inflation:
4.05% as of 06/13/23 (Down 1.99% from 6.04% on 3/14/23 and Down 4.53% from 8.58% in June 2022)
Unemployment:
3.7% as of 06/02/23 (Up 0.1% from 3.6% in March 2023)
Fed Funds Target Rate:
5.00 – 5.25% as of 06/27/23 (Up from 03/27/23 of 4.75 -5.00%)
Suggested Next Steps:
- Understand that market cycles are normal. The markets go up and down in mostly unpredictable directions and amounts. The ups and downs of investments many times seem to make sense only after they happen, however, market prediction is very difficult. (i.e. the next stock market crash has been predicted every year since 2008).
- Your investments are just one factor in the success of your life, money, and purpose. Make sure that you are confident in your full financial plan, so you can successfully have an amazing ROL (Return on Life).
- Your investment allocation and diversification are important factors in both risk management and future returns. Therefore, if you have questions about your investment plan, please schedule a phone or in-person meeting with your TrustWell Financial Advisor(s).
