2023 3rd Quarter Investment Bulletin

Executive Summary

• The recovery in portfolio values continued during the last 3 months as stock gains accelerated during the quarter. 

• Stocks were higher in April, but then for most of May the debt ceiling “crisis” hung over the markets and the economy. However, with passage of the debt ceiling resolution in early June, stocks rallied for the remainder of the quarter, resulting in a U.S. stock market gain of almost 8% in the 2nd Quarter!

• International Stocks moved higher during the quarter, albeit at a more subdued rate. However, the MSCI/EAFE index that covers international stocks has increased 12% year to date in 2023.

• The FED raised interest rates another quarter point in May and then held the line in June. During the 2nd quarter, market interest rates rose, which causes bond prices to fall resulting in a decline of -1.70% for the overall bond market. 

Update on Market Valuation

Despite the gain in stocks during 2023, the market may still have more room to grow. The chart below is from Morningstar and shows that based on their analysis of more than 2,000 individual stocks, the market remains undervalued. The 2nd chart below also shows that prices and earnings are in line with one another, which is another indication that the market is in a healthy position.

Extreme Concentration in Market Performance through 5/31

U.S. stock gains this year have been concentrated in technology stocks fueled by the hype/promise of Artificial Intelligence technology.  The so-called “Magnificent Seven” which consists of Apple, Microsoft, Nvidia, Amazon, Meta, Tesla, and Google have led this rally almost by themselves. Through the end of May, those few stocks were responsible for more than 95% of the market’s gain. (See chart below):

Stock Gains in June More Evenly Dispersed

For stock gains to continue, a broadening out of gains to other stocks and sectors is necessary. Thankfully, the month of June provided a more balanced dispersion of gains that saw mid-cap, small-cap and value stocks produce strong gains. (See chart below):