As we finalize the log on the first six months of 2023, we believe there’s some value in reflecting on recent months gone by. Doing so can help crystallize key learnings and help chart a course through the rest of the year. Looking back on the first half of 2023, it’s probably fair to say the outcome has been significantly better than most analysts expected for the stock and bond markets, especially compared to 2022’s tumult.
We also learned that many investment providers and financial advisers continue to use short-term market downturns to attempt to increase their assets under management by promoting expensive, complicated and, in many cases illiquid alternatives to stocks and bonds. While some of these may be suitable in certain situations, most are not worth the added expense and opportunity cost paid to sell existing investments which had declined in value in 2022.
However, fear is a very powerful motivator, and it is disappointing that the investment industry continues to hawk many of these products to both you and us during what history strongly suggests is the absolute wrong time for long term investors to be considering adding them to your portfolio.
So, what major points have we learned through the first half of the year?
1. Inflation’s path is not endlessly higher. The return to some
post-COVID-19 supply/demand normalcy and an ease in input costs have helped push the inflation rate down—which has helped both stock and bond markets bounce back.
2. Still-strong consumer spending and a stubbornly tight job market have helped the U.S. avert a recession…so far. The Federal Reserve continued to raise interest rates, but we believe they may begin reducingrates as early as Q4 2023 or Q1 2024.
3. Bonds look like bonds again. After enduring a generational period of weakness in 2022, bonds are back and should be considered important ballasts in a multi-asset portfolio.
Given what we have noted so far, we are now focused on the second half of the year. We’ve seen improvements in the bond market and positive returns, and believe there are still plenty of opportunities for both capital appreciation and attractive income generation—assuming both inflation and interest rates continue to glide lower. The bond market could offer an opportunity that has not existed in over 15 years. If you think you might have too much sitting in cash at the bank or credit union, please contact us to discuss potentially higher interest-bearing alternatives.
Turning to stocks…the market has already put in some notable gains for the year. This doesn’t mean stocks cannot go up from here, but rather that the risk/reward equation in stocks and bonds looks more evenly balanced. We do see opportunities to continue to gradually “re-globalize” your stock allocation after more than a decade of being significantly underweighted internationally.
The key headline economic issue for the rest of the year is likely to be the threat of recession. We have already seen a push lower in corporate earnings expectations. Some weakening in manufacturing and services indicators, and early signs that the consumer could be slowing down, point to the likelihood of a mild recession to come. This view is reinforced by the expectation that the jobs market could weaken modestly through the end of this year.
Overall, the opportunities in the second half of the year may not be as robust as in the first half. However, the difficulty we witnessed last year likely helps lay the groundwork for further market stabilization as we press ahead. Despite our view that we are still likely to experience a mild recession, we will use any short-term sell-off in the stock market to reallocate a small percentage of your more conservative investments to be better positioned for the market recovery.Market recoveries typically begin prior to the end of an economic downturn, and are usually quick and robust.
Thank you for your continued trust and confidence as we focus on growing and protecting your family’s treasure for the future. As always, don’t hesitate to reach out to us if we can be of service.
Important Information: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of July 3, 2023.
Any company names noted herein are for educational purposes only and not an indication of trading intent or asolicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measureperformance of the broad domestic economy through changes in the aggregate market value of 500 stocks representingall major industries.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Past performance does not guarantee future results. Asset allocation does not ensure a profit or protect against a loss. For a list of descriptions of the indexes and economic terms referenced, please visit our website at