MARKET UPDATE: SECOND QUARTER 2023

Stocks arguably defied expectations in the first half of the year. Major stock market indices made significant gains 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.  The S&P 500 ended the second quarter of 2023 at a 14-month high. 

The second quarter saw an acceleration of the tech sector outperformance in the first quarter, as Artificial Intelligence enthusiasm drove several mega-cap tech stocks higher.  Those strong gains resulted in large rallies in the tech-focused Nasdaq and, to a lesser extent, the S&P 500 as the tech sector is the largest weighted sector in that index. By size, large-caps outperformed small-caps, as they did in the first quarter of 2023.  Regional bank concerns and higher interest rates still weighed on small-caps as smaller companies are historically more dependent on financing to maintain operations and fuel growth.

From an investment style standpoint, growth handily outperformed value again in the second quarter, continuing the sharp reversal from 2022.  Tech-heavy growth funds benefitted from the “AI” enthusiasm.  Value funds, which have larger weightings towards financials and industrials, relatively underperformed growth funds.

Internationally, foreign markets lagged the S&P 500 due to the relative lack of large-cap “AI” exposed stocks in major foreign indices, combined with some late-quarter worries about the EU economy and pace of Bank of England rate hikes, although foreign markets did finish the second quarter with a modestly positive return.  Foreign developed markets outperformed emerging markets due to a lack of significant economic stimulus in China, which weighed on emerging markets late in the quarter.

A recession in the United States seems probable over the next 12-18 months.  The tipping point will likely come when corporate profit pressures force firms into austerity measures such as layoffs and capital expenditure delays, and households – having exhausted pandemic savings – respond by cutting back on discretionary spending.  

While markets could move upward during the second half of the year, today’s market demonstrates why it is important to have a strategic plan and focus on the long-term.

HOUSE PASSES BILL TO PROTECT AGAINST SENIOR INVESTOR SCAMS

With older Americans reportedly losing up to $36 billion each year to scams, the Senior Security Act, introduced April 13, creates a new Senior Investor taskforce with the Securities and Exchange Commission (SEC). The taskforce’s duties would include reporting on topics relating to investors over the age of 65, including industry trends and issues impacting such investors, and make recommendations for legislative or regulatory actions.  More specifically, the SEC taskforce would be required to:

  • Identify challenges that senior investors encounter, including problems associated with financial exploitation and cognitive decline.

  • Identify areas in which senior investors would benefit from changes at the SEC or the rules of self-regulatory organizations.

  • Coordinate, as appropriate, with other offices within the SEC and other taskforces that may be established within the Commission, self-regulatory organizations, and the Elder Justice Coordinating Council.

  • Consult, as appropriate, with state securities and law enforcement authorities, state insurance regulators and other federal agencies.

The legislation also would require the Government Accountability Office – Congress’ investigative arm – to report on the financial exploitation of senior citizens.  The legislation has been passed by the House of Representatives on June 5 by a unanimous voice vote.  It has now been referred to the U.S. Senate for consideration.

Photo by Charnchai on iStock