Financial Market's - 2023 Performance

The second quarter of 2023 continued to build upon the 1^st quarter’s gains in stocks. The broad market’s Dow Jones Industrial stocks rose +4%, while the S&P 500 Index rose +8.7% for the three months.

The performance out of the gate in January surprised many, in that the economy, inflation and interest rate worries were still important drivers of a potentially slowing economy.

The S&P 500 rose more than the Dow Industrials due to the heavy concentration of technology stocks performing very well. Think Apple, Nvidia, Microsoft.  

The stock Sectors that performed well the first 6 months included Information Technology, +35%, Consumer Discretionary, +30% and Communication Services, +30%. With the S&P 500 up near 16%, no other Sectors of the 10 beat the S&P 500! Energy lost 10%. Health Care was down 4%, Utility stocks lost 6%, Financials (banks) and Real Estate* lost 2% each. Consumer Staples was even. So you can see, the gains were quite narrow-based sector-wise.

The Federal Reserve increased interest rates three times in the first half of 2023 also, to try to soften demand for both money and goods – hoping to tame inflation. It’s been working fairly well thus far, as prices overall are dropping year-over-year. The Feds target is 2% inflation; we’re at 3% year-over-year now. But many areas are well above 3% in the last (June) report. 

Rents are up 8%, hotels +5%. The bean counters call these Shelter Costs, and they are a big component to the prices used to calculate inflation. Also, food prices are up 5.7% year-over-year. One relief is energy prices; gas, oil; down about 16%. It doesn’t feel that way at my gas station, though. 

So, the Federal Reserve’s interpretation of which inflation time-frame to look at can result in how they adjust interest rates. July 26^th – this week – is their next interest rate decision; look for some fireworks perhaps in the stock and bond markets starting Wednesday.

Bonds and Gold could not keep up with the price rises in stocks, however.

Gold increased just $87 for the six months, after surrendering some of the $155 gain through March 31^st. Still, that was good enough for a +4.8% gain in the first half, so it did contribute to performance. Gold traded at its yearly high in early May near $2,050 an ounce, settling at $1,912 end of June. Today the yellow metal is near $1,960.

Bonds, also commonly referred to as Fixed Income, traded mostly flat for the quarter. A bond’s total return consists of its interest payments + its capital appreciation or depreciation. Corporate and Treasury debt reported small losses of ¼% to ¾% for the three months. A one-year U.S. Treasury Note now pays 5.35% vs. 4.75% at year-end. That’s 12% more interest earned as a saver, OR 12% more costly as a borrower.

In sum, the stock market is having a good year through June 30^th, and maybe is looking forward to 2024 with no recession forming. Looking at just July thus far, stocks are UP 2.5% to 3%, while Gold added 2%. The short term trend is indeed favorable.

Still, stock prices are essentially even over the two year stretch ending June 30^th. Reported inflation is up +12.3% during that time. $112.30 needed now to buy $100 of the same stuff in June 2021, showing that most investors are behind after factoring inflation into their total return.

Here's hoping Summer is unfolding spectacularly for all.
Thanks for reading.

~Barry

* The Real estate sector is fairly broad, covering commercial, residential and Real Estate Investment Trusts (REIT's) and Real Estate operators that buy and develop land. It does not include Residential Home Builders. That industry group has been a very strong performer in 2023. Think Lennar, KB Homes, Pulte Homes, D.R. Horton, Toll Brothers. These stocks have averaged about a +45% gain this year, far surpassing the average stock price gains noted in my article.