Equity Overview

All eleven sectors in the S&P 500 rose in March, with consumer discretionary the best sector and utilities the weakest.  Gains were distributed almost evenly across growth and value stocks.  Volatility was benign, as the S&P 500 moved more than 1% on only 4 of 21 trading days.

The NASDAQ-100, which tracks the one hundred largest non-financial companies in the NASDAQ Composite, rose 39.4% in the first half of 2023, the largest first-half gain since its inception in 1985. Much of that gain was attributable to mega-cap tech stocks.  Importantly, however, June saw eye-opening performance among less flashy sectors like industrials and materials, which each gained over 11% for the month.  This suggests that economic activity may be broader than currently appreciated, and therefore that a recession is less likely than anticipated.

Macro Overview

Economic headlines in June were promising.  Job growth jumped as employers added 339,000 jobs, well above estimates of 190,000.  Housing was solid.   Factory orders were higher, although manufacturing was slightly lower.  Retail sales gained.  Consumer confidence spiked to its highest level since January 2022. Inflation as measured by the Consumer Price Index declined to 4.0% year-over-year.

The Commerce Department issued its final revision of GDP growth in the first quarter and it was sharply higher at 2.0%, well above the previous estimate of 1.3%

Any residual concerns about the banking sector were alleviated as all the major banks passed the Fed’s annual stress test (which assumes a 10% unemployment rate and a 40% drop in commercial real estate prices.)