In the face of volatility from the debt ceiling issue, equity markets delivered, and bonds were slightly negative for the second quarter. The economy also grew while inflation decelerated. Overall, consumer price growth slowed to 4% in May, with fuel costs declining and grocery price increases moderating. After raising rates 10 times in a row since March 2022, the Federal Reserve left interest rates unchanged in June, skipping an increase. Today, the Fed funds rate is 5.25% (which is now above inflation), typically marking the end of a Fed tightening cycle. However, the current Fed insists on leaving the door open to more rate increases. Meanwhile, companies’ successful price increases are boosting profits, and stock market volatility has moderated—both of which have fueled equity appreciation.

Stocks had a good quarter. The S&P 500 was up 8.7%, the Russell 2000 small cap index achieved a 5.2% gain, and the international equity index—Europe, Australasia, and the Far East (EAFE)—finished with 2.9%. Value benchmarks were up in the low- to mid-single digits. Within value stocks, the more heavily weighted energy, consumer staple, and healthcare companies were challenged due to lower oil prices, lower sales from higher pricing, and a rise in healthcare wages, respectively.

The yield on the 10-year Treasury bond, a primary driver for mortgage rates, held steady in the 3.8% range. Housing demand is high, and builders are doing well as they work to satisfy America’s perennial housing shortage. Unemployment continues to hover close to 50-year lows. And last month, wage growth exceeded inflation for the first time in over a year. The economy is steady, with consumers spending at a lower but positive rate.

Internationally, travel is strong, and the global travel boom is expected to continue for the remainder of the year. Europe is wrestling with much higher inflation, and China did not experience the economic bounce expected from ending their lockdowns. European energy costs are higher than ours, partially due to the ongoing war in Ukraine. China is easing financial conditions and trying to stimulate real estate investment.

Stocks are up over 20% from their October 2022 lows. Inflation is forecast to decrease to the 2-3% range by this year’s end, which should prompt the Fed to stop raising interest rates, leaving the runway open for stocks and bonds to rise. Even more impressive, we are remarkably close (low single-digit percent) to exceeding the January 2022 highs.

If you have any questions or would like to discuss, please call your Resource Consulting Group advisor.

Benchmark Returns for the Period Ended June 30, 2023

Quarter1 Year*5 Year*10 Year*
US Treasury Bills (0-3 months)1.23%3.75%1.55%0.96%
Bloomberg US Agg Bond-0.84%-0.94%0.77%1.52%
Standard & Poor’s 5008.74%19.59%12.31%12.86%
Russell 1000 Value (large cap value)4.07%11.54%8.11%9.22%
Russell 2000 (small cap)5.21%12.31%4.21%8.26%
Russell 2000 Value (small cap value)3.18%6.01%3.54%7.29%
MSCI Europe, Australasia and Far East (EAFE)2.95%18.77%4.39%5.41%
MSCI Europe, Australasia and Far East (EAFE) Small Cap0.58%10.18%1.31%6.19%
MSCI Emerging Markets0.90%1.75%0.93%2.95%
Wilshire REIT3.31%-0.31%4.40%6.39%
*1-, 5-, and 10-year returns annualized. Source for returns: Morningstar TM as of 06/30/2023.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The index returns above assume reinvestment of all distributions. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.