2022 was a turbulent year for investors, punctuated by double-digit declines across major stock and bond indices. However, 2023 has brought some relief. As we pass the halfway point, a review of Q2 reveals a market recovery is firmly underway.

Stocks Surge, Thanks to Big Tech

The S&P 500 has experienced a dramatic turnaround, rising nearly 17% year-to-date. However, this comeback is heavily skewed toward mega-cap technology stocks, which account for an outsized 95% of the index’s gains so far. The equal-weighted Dow Jones presents a different picture, having risen a more modest 5% in 2023. This bifurcation highlights the importance of proper diversification.

Bonds Achieve Stability, But Far From Exciting

After plummeting 13% last year, bonds have finally stabilized in 2023. Returns hover around 2% – hardly thrilling, but a welcome return to normalcy. For balanced portfolios, this restored bond performance helps offset stock volatility.

Addressing Troubled Banks While Job Market Holds Overall

The Fed has taken aggressive steps to rescue faltering banks like Silicon Valley Bank, while a debt ceiling agreement avoided fiscal catastrophe. Meanwhile, the job market remains strong in the aggregate. Openings still well exceed pre-pandemic levels, though some cracks are emerging. Locally, business owners are contemplating layoffs for the first time since COVID, signaling pockets of softening.

Inflation Moderates, But Recession Fears Loom

On the inflation front, the rate has fallen for 12 straight months after hitting a 40-year high last June. However, at 3% it remains well above the Fed’s target. More rate hikes are expected in 2022, likely leading to a mild recession in 2023 according to experts. Markets tend to rebound before recessions are officially declared, underscoring the importance of a long-term perspective.

Staying the Course Is Key

While risks certainly remain in 2023, the markets have shown early resilience coming off a difficult 2022. For long-term investors, tuning out short-term noise, focusing on goals, and adhering to sound financial plans will be essential to navigating the months ahead.

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