Capital Market Review - Second Quarter 2023

Inflation

Inflation continues to fall steadily from the 40-year high of 9.1% in June 2022 to a more modest 4.0% in May 2023. E Energy prices, driven by the Russia-Ukraine war, which were the most significant contributor to inflation last summer, are now the largest contributor to disinflation. Core goods, including food prices, are improving due to lower demand and improved supply chain mechanics.  Housing (shelter) prices have been the most stubborn sub-competent of inflation but are showing signs of turning.  Shelter tends to be a stickier component since typical owners stay in a house for 13 years, while a typical lessee remains for 1-2 years.

Source: JPMorgan Asset Management, Market Insights: Guide to the Markets, U.S. | 3Q 2023, As of June 30, 2023, Page 33.

Rising Rates

With inflation approaching the Federal Reserve’s long-term target, future rate hikes are expected to slow and perhaps reverse to rate cuts next year. At their June meeting, the Fed voted to leave the federal funds rate unchanged for the first time since tightening began in early 2022. Increased borrowing rates and tightening in credit conditions will likely pose a headwind to economic activity. Given the Fed’s hawkishness and softening economic conditions, the market’s expectations are closely aligned with the Fed’s guidance of multiple rate cuts in 2024.

Source: JPMorgan Asset Management, Market Insights: Guide to the Markets, U.S. | 3Q 2023, As of June 30, 2023, Page 36.

Unemployment

While many leading economic indicators are pointing toward a looming recession, perhaps the most important indicator remains moderately strong. The June employment report showed a slight unemployment rate decline from 3.7% to 3.6%.    For context, the January and April 3.4% rate represented a 53-year low.  Consumer spending represents the most significant portion of our economy, and a strong job market supports strong consumer spending.   

Source: Monthly unemployment rate U.S. 2023 | Statista

Markets

Despite early-year volatility, markets have posted solid gains year-to-date. Large U.S. equities (S&P 500) are leading the way, up 16.89%. Small U.S. equities (Russell 2000) are up a more modest 8.09%. Developed international equities (MSCI EAFE) are up an impressive 11.67% year-to-date. In addition, emerging market equities (MSCI EM) remain in positive territory, up 4.89%. Despite rising rates, bonds (Bloomberg US Aggregate Bond) are up 2.09%, supported by higher bond yields. The only major index in negative territory is the Bloomberg Commodity index which is down -7.79%. A decrease in materials (commodity) costs is consistent with the decreasing inflation trend.

Source: Allegheny Financial Group, Market Review at a Glance as of June 30, 2023.

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Author: Jim Rambo, CFA | Research Team | Allegheny Financial Group | July 2023

The information included herein was obtained from sources which we believe reliable. This report is being provided for informational purposes only. It does not represent any specific investment and is not intended to be an offer of sale of any kind. Past performance is not a guarantee of future results.

Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered Broker/Dealer. Member FINRA/SIPC.