Bel Air Investment Advisors Quarterly Market Review: Q2 2023
Bel Air | July 24, 2023
The second quarter of 2023 was marked by market rallies and rebounds, even amid continued recession whispers and the debt ceiling saga. In this analysis, we review the macroeconomic factors and market outcomes with the most significant impacts on the global investing landscape.
Domestic Disinflation Continued to Persist
Lower commodity and goods prices drove inflation to its lowest level in over two years. However, Core PCE – the Fed’s preferred measure of inflation – remained above the 2% target as consumer savings from the pandemic stimulus kept service and shelter prices elevated. The Federal Reserve decided not to raise rates in June but indicated two more rate hikes this year for 2023. The updated Fed dot plot provided a hawkish signal to the market, yet the market still believed rates will be cut by the end of this year. This rhetoric showed the FOMC’s continued concern about sticky inflation.
International Economic Growth Slowed
The Eurozone manufacturing PMI data continued to fall as higher rates tightened credit markets and lowered sentiment, but the services sector remained expansionary. Euro Area inflation fell throughout the quarter. The ECB and BOE both raised rates as they remained concerned about persistent inflation. Demand from China’s reopening has not materialized as strong as initially expected, weighing on European manufacturers. China’s post-opening recovery disappointed as retail sales, investment investments, and property sales fell short of expectations.
U.S. Equities Outperformed International Counterparts
The advancement of A.I. and its potential long-term impact on growth drove U.S. large cap tech stocks higher. The combined weight of the five largest companies in the S&P 500 reached 24%. The chipmaker NVIDIA joined this group due to the excitement surrounding A.I. Emerging market equities posted nominal gains as China’s reopening disappointed. European equities lagged their U.S. counterparts after a strong start to the year. Bullish sentiment around sufficient natural gas reserves faded and concerns about falling demand resurfaced. The price return for the S&P 500 was up +8.3% QTD and the MSCI ACWI ex USA was up +1.4% QTD. The MSCI EAFE was up +1.9% and MSCI EM returned -0.1%.
Fixed Income Garnered Mixed Returns
Uncertainty around the economic cycle and the Fed’s next move created an uneven performance in the bond markets. The U.S. Treasury yield curve remained inverted throughout the quarter. The U.S. 10 Year Treasury yield was 21.6 bps higher than the previous quarter. High yield levels are at 8.5% while the 10-year bond yield is at 3.8% as of Q2 2023.
Alternatives Have Yet to Materially Mark Down
Due to the lag in performance numbers, private equity and real estate have managed to continue a moderate performance. Oil fell by -5% QTD and Gold fell by -3.1%. Hedge fund returns were slightly positive throughout the quarter. The HFRI Fund Weighted Index returned 2.2% YTD.
Disclaimer: This material contains the views of Bel Air Investment Advisors and its research managers, and such opinions are subject to change without notice. The views reflect information and conditions as of the time of drafting, which will change over time. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
