The market finished the quarter with a very strong June, rebounding from the lows in March to finish up 16.9% year-to-date as large-cap technology stocks continued to lead. Cyclical performance picked up late in the quarter with strong movement in travel related names while defensives lagged. Both the S&P500 and the Nasdaq Composite entered a new bull market, conventionally defined as a 20% gain off the lows.
Rates moved marginally higher over the course of the quarter as the Federal Reserve hiked rates a further 25bps in May but paused in its June meeting leaving the benchmark federal funds rate at 5.00-5.25%. This was the first pause since January 2022, but Fed projections still imply two more rate hikes this year. This is above the prior peak expected in the March meeting at 5.1% as payroll growth remains strong and the Fed’s preferred inflation reading sits around 4.4%.
While the US continues to be surprisingly strong, China is proving to be unexpectedly weak despite the re-opening of its economy. China’s nonmanufacturing sector weakened in June while its manufacturing sector contracted for a third straight month as global demand for goods cooled amid a shift in spending to the service sector. High local government debt levels, sluggish consumer spending, a troubled property market, and record youth unemployment continue to pressure the Chinese economy. While China cut short-term borrowing rates in June, the measure looks too modest to lead to a material change in demand.
The Nasdaq Composite posted an impressive gain of 13.1% in the second quarter, far out stripping the S&P500’s return of 8.7% and the Dow Jones Industrial Average gain of 4.0%. Nine out of the eleven sectors in the S&P500 posted positive gains during the period with information technology and consumer discretionary posting strong gains for the second quarter in a row at 17.2% and 14.6%, respectively. Energy remained under pressure declining 0.9% while Financials rebounded gaining 5.3%.
Large-caps maintained their leadership outperforming both small-caps and mid-caps. The Russell 1000 gained 8.6% compared to the Russell 2000 Index’s rise of 5.2% and Russell Mid-Cap Index return of 4.8%. Growth continued to significantly outperform value stocks with the Russell 1000 Growth Index gaining 12.8% compared to the Russell 1000 Value Index’s return of 4.1%.
Bonds declined in the quarter, with long-dated US Treasuries falling 2.4% while US Corporates did better, but still declined, with the Barclays Aggregate down 0.8%. The US Dollar gained sequentially rising 0.4% but was down 1.7% YoY. Despite headline OPEC cuts, energy prices remained under pressure with West Texas Intermediate (WTI) crude declining 6.7% during the quarter and down 33.2% YoY. Gold declined 3.7% during the period while Bitcoin climbed 7.0% despite continued negative headlines from US government lawsuits against Binance and Coinbase.
All data sourced by Bloomberg.
The NASDAQ Composite Index is a market capitalization-weighted index that is designed to represent the performance of NASDAQ securities and it includes over 3,000 stocks. The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges. The Dow Jones Industrial Average (DJIA) is an unmanaged index composed of 30 blue-chip stocks, each with annual sales exceeding $7 billion. The DJIA is price-weighted, reflects large-cap companies representative of U.S. industry, and historically has moved in tandem with other major market indexes, such as the S&P 500. The Russell® 2000 Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. The Russell Midcap® Index, an unmanaged index, measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Russell 1000 Growth® Index measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value® Index measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Barclays Long-Term Treasury Index includes publicly issued U.S. Treasury securities that have a remaining maturity of 10 or more years, are rated investment grade, and have $250 million or more of outstanding face value. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. West Texas Intermediate (WTI) Crude Oil is the underlying commodity of the New York Mercantile Exchange's oil futures contract and serves as one of the main global oil benchmarks.
The views expressed in this commentary reflect those of Patient Capital Management analyst(s) as of the date of the commentary. Any views are subject to change at any time based on market or other conditions, and Patient Capital Management disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results.
©2023 Patient Capital Management, LLC