AGCA Market Commentary First ½ Scorecard 2023
A handful of technology stocks have created almost all the YTD returns of the S&P500. The breadth of stock participation was very narrow contributing to +16.38% return of the index for the first half of the year. The NASDAQ composite has gained +32.74% in the same time period. Therefore, despite all the excitement over “AI” (Artificial Intelligence), we believe the values are mostly at their highs.
Who can forget all the volatility of the first 6 months of the year: Silicon Valley Bank failure, rising rates from the Fed, spy balloons from China, cocaine in the White House. There was something for everyone. Hopefully, the Federal Reserve is closer to the end of its rate-hike cycle, and future earnings are most likely pricing in a mild recession. The uncertainty of the Fed has been affecting our markets for a year and a half; however, the “core” part of inflation has remained stickier to the higher side. The second ½ earnings look okay and not as bad as people were forecasting, but we think it is a good time to sit on 10-20% cash at a 5% money market return and watch. It’s definitely time for greater diversification. More drama in Washington may provide a little more entertainment for the year, but we think volatility should slow. Accessing credit may be more of a problem, but the consumer has remained strong. This situation may cause recession risks to rise. Slow growth coupled with uncertain monetary policy is a flashing caution light for the stock market.
The summer can be a slower time to regroup, take account of realized/unrealized gains and losses and get ready for the fall. We advocate utilizing the dollar cost averaging method for future intermediate term equity investments, and bond purchases should be on the shorter end of the yield curve. The longer-term outlook is very positive. Dividends are growing and investor tailwinds from a falling dollar could prove to be a positive for stocks internationally. Overall, investor sentiment and positioning reflect a lack of continued conviction. Our equity models still reflect a commitment to high quality supported by strong dividends.
We all wish you a relaxing summer and look forward to continued but muted prosperity in the 2nd ½ of the year.
Best wishes from A.G. Campbell Advisory, LLC.