Quarterly Market Commentary - July 2023

Three Questions for H2

For your convenience, below are a few summary highlights from our Investment Strategy Group’s Quarterly Market Commentary for July 2023:

Market Review

• The US Federal Reserve paused its series of hikes, though markets interpreted it as a “hawkish” pause and expect at least one more rate hike this year.
• Inflationary pressures eased with an 11th consecutive decline in the Consumer Price index (CPI) combined with a lower-than-expected reading in the Fed’s preferred inflation measure, the core personal consumption expenditures (PCE).
• Economic data remained resilient, defying the recession skeptics for at least another quarter. Additionally, consumer confidence increased to the highest level in nearly one and a half years.
• US equity markets posted continued strong performance, with the S&P 500 up 8.7% during the second quarter (16.9% year-to-date) and the Nasdaq up 13% (32.3% year-to-date).
• Fixed income markets continued to be volatile, with the US 2-year Treasury rising almost 90 basis points to 4.9% during the quarter.

Market Outlook

• We believe it will be difficult for the Fed to continue its rate hike cycle after July, given declining inflationary pressures and financial stability risks that are still present.
• Monetary policy divergence, financial stress, and geopolitical tensions should present more opportunity for active management to add value.
• Economic data remained resilient, defying the recession skeptics for at least another quarter. Additionally, consumer confidence increased to the highest level in nearly one and a half years.
• Concerns about the durability of equity performance will continue in the second half of the year as markets digest slowing corporate earnings and the impact of the rapid rate hike cycle.
• We view core fixed income as increasingly attractive, given the backup in yields as well as the increased diversification potential in portfolios.

Read More