Market Commentary: Q2 2023 July 17, 2023

The first half of 2023 has proven to be the highest performing half year for financial markets since 2018, which of course predates the economic, social, and political disruptions brought about by the COVID pandemic. Stocks extended their rally in the second quarter, being boosted by cooling inflation, the prospect of a shift in monetary policy, and consumer enthusiasm over artificial intelligence. Let’s delve into the key highlights and trends that shaped the quarter.

Inflation Breaks

The stock market’s climb over the course of the second quarter did not come without occasional bumps along the way, including a political battle over raising the debt ceiling. One important driver that helped overcome these drawbacks was the continued progress by the Federal Reserve in the fight against inflation. The annual inflation rate in the U.S. slowed to 3% at the end of Q2, the lowest rate since March of 2021 and compared to the projected 4% rate just one month before in May.

The Federal Reserve

After raising interest rates by 0.25 percent following both the March and May meetings of the Federal Open Market Committee (FOMC), the Federal Reserve elected to keep rates unchanged in June, pausing to assess the economic impact of the cumulative rate hikes to date. Language in the rate announcement and comments made by Chairman Powell indicate that, despite the pause, two more rate hikes are likely before the end of the year.

Spotlight on Artificial Intelligence (AI)

Investor enthusiasm for artificial intelligence has been cited among the key drivers for tech stocks’ recent gains. But what does it mean for investing? Despite the promise of AI, we believe that there’s no reason to think AI offers investors predictive capabilities for market timing and/or market manipulation.

Financial markets aggregate information in a way that could be compared to AI, but these markets are forward-looking, reflecting investors’ best estimate of an asset’s value in relation to the future expected returns of that asset. That makes the stock market the world’s largest information-processing machine. Its “aggregated intelligence” adjusts as new information comes in, setting prices that buyers and sellers agree are fair pertaining to millions of stocks and bonds every day. AI has been around for a while and can be expected to continue to improve. But, we’ve yet to see research that says anyone can outsmart the market— even artificial intelligence.

Market Summary

Second quarter 2023 index returns:

Chart for market returns for Q2 2023

Keep the Long-Term in Mind

While most investors are pleased with the market growth experienced in the first half of the year, we know that stocks do not move in a straight line and volatility is an inevitable part of the cycle. A long-term plan focused on individual goals, prioritizing good processes over bold predictions can put you in the best position for a positive experience, regardless of whatever may be in store for the market at large. Thank you for trusting Petersen Hastings to help you reach and sustain your financial goals.

Petersen Hastings

Q2 Market Commentary 2023

Author: Scott Sarber, CEO | Sr. Wealth Advisor

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