The first half of 2023 has been shaped by just seven stocks that investors are betting will benefit from the frenzy in artificial intelligence stocks, namely Amazon, Alphabet (Google), Apple, Microsoft, Meta Platforms, Nvidia and Tesla. These stocks contributed 75% of the gains in the S&P 500 Index, which was up almost 17% through June. This technology-driven rally led to a widening gap in performance between investment styles with growth stocks significantly outperforming value stocks during the quarter.
Nine of the eleven S&P 500 sectors finished the second quarter with a positive return. The three top performers during the quarter were the same top performing sectors in the first quarter of 2023, communication services, consumer discretionary, and technology.
By market capitalization, large caps continued to outperform small caps, driven largely by the mega cap stocks mentioned earlier.
In foreign markets, Japan was the best performing country during the quarter due to improved economic conditions and increased sentiment around tourism and manufacturing. Overall, domestic markets outperformed foreign markets during the quarter. With the exception of China, foreign markets have performed in line with the U.S. market over the past 12 months.
Investment grade bonds were down slightly in the second quarter as yields rose, but are still positive on a year-to-date basis. A rally in riskier assets helped high yield bonds, which were the best performing fixed income sector during the quarter. Other good news in the bond markets is that spreads are now back to levels seen before the regional banking crisis which began in March and historically tighter spreads tend to correspond with faster growth.
Gross Domestic Product (GDP) was revised upward to a 2% annualized growth rate in the first quarter 2023, up from a 1.3% growth rate, and is now back in line with the 2% growth trendline.
Both the unemployment rate at 3.6% and the number of unemployed U.S. workers at 6 million remained basically the same in June, and the labor participation rate remained at 62.6% for the fourth consecutive quarter.
U.S. inflation (as measured by the Consumer Price Index) slowed to 3% at the end of June, down from 4% in May. The indexes which increased in June were shelter, motor vehicle insurance, apparel, recreation, and personal care. Costs for air travel, used cars and trucks, and household furnishings declined during June.
