Broker Check
Second Quarter 2023 Market Commentary

Second Quarter 2023 Market Commentary

July 12, 2023

We hope that everyone had a great 4th of July and was able to spend time with family and friends. 

In continuation of the trend that started in the first quarter, most major stock indices produced positive results in the second quarter.  Domestic large cap stocks rose by +8.7%, domestic small cap stocks increased by +5.2%, international stocks were up +3.2% while the US bond market decreased by -0.8%.  Technology stocks led the way once again with a quarterly return of +17.2%, followed by consumer discretionary (+14.6%) and communication services (+13.1%).1 One of the major themes across the entire market was a heightened focus on artificial intelligence (AI), with 110 companies mentioning AI during their earnings calls. This was a 41% increase from the prior quarter.2

Strong earnings and improving economic conditions also played a role in the positive success of the stock market for the quarter.  As of June 1st with 99% of the companies comprising the S&P 500 reporting, 78% reported a positive earnings surprise, while 75% reported a positive revenue surprise. The earnings beat percentage was the best performance relative to Wall Street estimates since the fourth quarter of 2021.3

However, despite the earnings success of these companies, stock market performance has only been driven by a small number of stocks during the first half of the year.  Through the end of May, if you remove the top 8 stocks, the S&P 500 return would have been negative year to date.  We started to see a shift in June as market leadership began broadening slowly.  Using the same measure as May, you would have to remove the top 44 stocks to push the S&P 500 into a negative return.4 We are hopeful that the widening of market breadth will continue in the second half of the year. 

Pivoting to the economic updates during the quarter, inflation continues to moderate.  Headline inflation rose 0.1% in May and 4.0% over the past 12 months. This was the lowest annual rate in more than two years.  As a result, the Fed decided to keep rates unchanged in June, pausing to assess the economic impact of the cumulative rate hikes to date.  This was the first meeting where there was no change after ten straight meetings of interest rate increases. 

As was the case with the first quarter, the market ascent did have some bumps along the way.  The most notable was surrounding the political battle over increasing the debt ceiling.  Both sides were able to come to an agreement and avoid default.  The volatility that has lingered during the first half of the year will likely persist for the balance of 2023 as inflation normalizes to the Federal Reserve’s target of 2.0%. We believe interest rate increases will eventually cease and transition to cuts in 2024 along with market valuations slowly reverting to their longer-term averages.


As always, we appreciate your trust and confidence in all of us at MSA Financial. Should you have any questions or if you would like to schedule time to review your portfolio or discuss the economic environment, do not hesitate to contact us.


1Market segment (index representation) as follows: Domestic Large Company Stocks (S&P 500), Domestic Small Company Stocks (Russell 2000) International Stocks (MSCI EAFE) and Domestic Bonds (Bloomberg Barclays US Aggregate Bond Index), May 26, 2023 – MSA Financial Monthly Market Insights, June 1, 2023 – MSA Financial Monthly Market Insights

 4 S&P 500 U.S. Equities Market Attributes June 2023 -


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