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Newsletter - 2nd Quarter 2023 Thumbnail

Newsletter - 2nd Quarter 2023


The second quarter of 2023 proved challenging for seasoned investors, marked by various significant events. These include the United States reaching an agreement on the debt ceiling, the Federal Reserve pausing their aggressive interest rate hikes, and declining concerns about bank failures. Despite these circumstances, equity markets defied expectations and remained resilient, with major indexes closing the quarter higher than their initial levels. The S&P 500, benefiting from the support of mega-cap tech stocks and the hype surrounding artificial intelligence (AI), officially entered a new bull market in June, experiencing a surge of over 20% from its October 2022 low.

Experts have differing opinions regarding the S&P 500 bull market, with some suggesting it might be a temporary stroke of luck before an impending recession. Jeremy Siegel, a renowned economist, and professor at the Wharton School, expressed caution in his commentary for WisdomTree, stating, "This recent bull market move is no guarantee we are out of the woods from the downturn. I remain cautious, and I do not think we have the start of a major up move here." On the other hand, Tom Lee, Head of Research for Fundstrat, believes that stocks are not overextended and credits big tech for playing a significant role, stating, "If we are slipping into an expansion, a lot of other groups are going to participate." (Source: markets.businessinsider.com, 6/17/23)

While speculation about the economy’s future is futile, it is evident that uncertainty continues to prevail. Over a year ago, borrowing at historically low-interest rates close to zero percent was possible, but since then, the cost of necessities and living expenses has risen significantly. For instance, the average price of a loaf of white bread has increased by 23.19% since 2020. (Source: www.in2013dollars.com)

During the quarter, investors grappled with the potential for a major U.S. default. However, relief came on June 1 when the Senate passed the debt ceiling agreement, imposing caps on federal spending until January 2025. Despite the favorable conditions experienced by investors during the second quarter, it is not a time to become complacent. Geopolitical unrest, political pressures, and ongoing changes in monetary and fiscal policies can contribute to sustained equity market volatility.


During the second quarter, there were signs of inflation easing. According to the consumer price index (CPI), prices in May 2023 increased by 4% compared to a higher rate of 8.6% in May 2022, representing a change in the 12-month percentage. 

(Source: statista.com, 6/19/23)

In response to the slowing inflation, the Federal Reserve, after implementing 10 consecutive interest rate hikes, finally took a much-anticipated pause in June. As of June, the Federal Funds target rate range is 5.0 - 5.25%. Although inflation has moderated compared to a year ago, it continues to exert pressure on the economy. In mid-June, Chairperson Jerome Powell reiterated the likelihood of further interest rate hikes, possibly one or even two more times in 2023, suggesting that we may witness an additional half percentage point increase by the end of the year. The Federal Open Market Committee (FOMC) has four more meetings scheduled in 2023, taking place in July, September, October/November, and December. (Source: cnbc.com, 6/28/23)

We are closely monitoring interest rates and inflation, as they can impact your portfolio.


During the second quarter of 2023, the United States economy exhibited signs of robust growth, marked by positive developments in key economic indicators.

US Gross Domestic Product (GDP) notably expanded, surpassing expectations. Preliminary reports indicate that the economy grew annually at 5.8% during the second quarter. This strong performance can be attributed to several factors, including increased consumer spending, a rebound in business investments, and a steady recovery in the services sector.

The US labor market experienced continued improvements during the second quarter. The unemployment rate declined to 3.6%, reaching its lowest point before the pandemic. This decline in unemployment is an encouraging sign that businesses are gradually regaining confidence and are willing to hire more workers amid the economic recovery.

US CPI (Consumer Price Index) saw a moderate increase during the second quarter, with consumer prices rising by 3% year over year. While this uptick is not unexpected, given the economic rebound, it has raised concerns about potential inflationary pressures. The Federal Reserve closely monitors the situation and may take necessary measures to ensure price stability and economic balance.

In conclusion, the second quarter of 2023 witnessed a strong and resilient US economy, with GDP growth exceeding expectations and a historically low unemployment rate. However, the slight increase in the CPI highlights the need to monitor inflationary pressures in the coming months carefully. Policymakers and economic authorities must strike a delicate balance to sustain the economic recovery while mitigating inflation risks.


In the second quarter of 2023, the U.S. bond market witnessed several developments and trends.There was a notable shift in investor sentiment as concerns over rising inflation and potential interest rate hikes eased during the quarter. This led to decreased bond yields, particularly at the longer end of the yield curve. The Federal Reserve's decision to pause its interest rate hikes in June further contributed to the more favorable bond environment.

Another key factor influencing the bond market was the U.S. debt ceiling issue resolution. The Senate's passing of the debt ceiling agreement in June gave investors some stability and reassurance, alleviating concerns about a potential default. This contributed to a more positive outlook for U.S. government bonds.

Additionally, corporate bonds continued to attract investor interest as companies accelerated their debt issuance in response to the pause in rate hikes. Despite the uncertainties surrounding geopolitical events and economic policies, the U.S. bond market demonstrated resilience and remained an attractive option for investors seeking income and stability.

While risks and uncertainties persist, the overall performance of the U.S. bond market in the second quarter of 2023 suggests that it remains a significant component of investors' portfolios and a key avenue for capital preservation and income generation.


The US equity market had a strong performance during the second quarter of 2023, driven by various factors and exhibiting notable differentiations within equity styles and market capitalizations.

Regarding equity styles, growth stocks continued to shine in the second quarter. Companies with strong growth potential, particularly in the technology and innovation sectors, attracted significant investor attention and contributed to the overall market gains. On the other hand, value stocks, traditionally associated with more established and stable companies, faced challenges and lagged behind growth stocks.

Market capitalizations also displayed variations in performance. Large-cap stocks, representing well-established companies, generally performed well and contributed to the overall market growth. Mid-cap and small-cap stocks, typically representing smaller and younger companies, experienced mixed results, with some sectors outperforming and others facing more challenges.

Analyzing the top three performing sectors during the quarter, technology stood out as a clear leader. The sector benefited from the continued demand for tech-related products and services, driving strong growth and investor enthusiasm. Additionally, sectors such as healthcare and consumer discretionary demonstrated resilience and strong performance, reflecting positive consumer sentiment and increased spending.

Conversely, the bottom three performing sectors were influenced by various factors. Energy, for example, faced headwinds due to concerns over global oil demand and fluctuations in oil prices. Financials also experienced some challenges, partly due to uncertainties surrounding interest rate hikes and potential regulatory changes. Additionally, defensive sectors such as utilities and consumer staples, which are generally more resilient during economic downturns, underperformed as investors favored growth-oriented sectors.

When comparing the performance of the US equity market to international and emerging markets, the US market generally outperformed many counterparts. While international markets experienced mixed results, influenced by regional factors and geopolitical events, the US market demonstrated resilience and attractive returns. However, it's important to note that market dynamics and performances can vary significantly across different regions and emerging markets, with some showing strong growth potential while others face economic challenges.


Financial circles are abuzz with speculations regarding a potential US recession in 2023. The New York Fed suggests a 70% chance of a recession occurring by May 2024, though certainty remains elusive. During a monetary policy session in Portugal, Chair Powell acknowledged the significant possibility of a downturn, but it's not deemed the most likely scenario.  

It's essential to remember that recessions, like downturns, are not novel occurrences. Throughout the last century, the S&P 500 navigated through 17 recessions and consistently recovered its losses. However, relying on market timing for investments is considered an unwise strategy. Currently, cash levels are at an all-time high, complicating market predictions. Investors should refrain from attempting to out-guess market movements.

Rather than trying to predict a recession, a proactive financial plan is recommended to weather any economic challenges. The past few years have taught investors that expecting the unexpected is a better practice. Should a recession hit the US, maintaining financial liquidity, and anticipating future financial commitments, such as funding a wedding or buying a home, is prudent.

We'll closely monitor inflation rates, economic growth, and monetary policies in the third quarter. As financial professionals, we aim not to predict the future but to provide a robust financial plan to weather any market environment. While past performance doesn't guarantee future results, history shows fruitful equity returns following recessions.

We firmly believe in the long-term commitment to investing in equities, even during challenging market conditions. Practicing patience, proceeding with caution, and focusing on long-term stability and quality are essential for financial success. Loss aversion may tempt investors to withdraw from equities during uncertain times, but historically, those who stayed diversified and invested were rewarded.