Second Quarter of 2023 Economic Summary and Market Outlook

July 27, 2023

Global economies during the 2nd quarter of 2023 navigated a mixed landscape as they emerged from the challenges posed by the COVID-19 pandemic economic impacts, continued geopolitical uncertainty and the residual impacts of several central bank tightening cycles seen in markets across the globe. Economic growth remained resilient, particularly in the United States, defying initial expectations. However, the Eurozone and the UK faced sluggish GDP figures in Q1, highlighting ongoing uncertainties in the aftermath of the pandemic.

Global Equities and Sector Performance:

Global equities posted gains during Q2, with the MSCI ACWI index rising 6.2%, bringing its year-to-date gains to 13.9%. The US stock market outperformed, with the S&P 500 gaining 8.7% during the quarter and 16.9% year-to-date. Technology, communication services, and consumer discretionary sectors led the charge, being the best-performing sectors both in Q2 and year-to-date. Meanwhile, the energy and utilities sectors lagged during Q2, remaining the worst-performing sectors year-to-date.

Stock Performance:

Large-cap stocks outperformed small-caps during Q2, and growth stocks outperformed value stocks, with large-cap growth being the best performing style segment in 2023. Mega-cap tech stocks, in particular, delivered outstanding performance during Q2. The quality factor produced the strongest results during the quarter, while the momentum and value factors lagged. Quality has been the best performing factor year-to-date, indicating a preference for fundamentally strong companies.

Fixed Income, Inflation and Central Bank Policy:

The Bloomberg Aggregate Index declined 0.8% during the quarter, with Treasuries falling 1.4% and corporate bonds slipping 0.3%. The yield curve shifted higher, with longer-term yields nearing levels observed at the start of 2023. The 2-year yield rose by 81 basis points, and the 30-year yield rose by 18 basis points. Credit spreads on investment-grade corporate bonds tightened, indicating an improvement in the perceived creditworthiness of investment-grade corporations. High yield bonds performed well, gaining 1.7% during Q2, as credit spreads narrowed significantly. Meanwhile, overseas, the ECB and BOE raised rates, signaling their confidence in economic recovery.

The Federal Reserve paused its rate increases in June after a 25-bps rate hike in May. Market expectations point to an additional 25 bps rate hike later in 2023, although the latest Fed dot plot suggests the possibility of additional rate hikes later this year. Fed guidance has been relatively hawkish, given inflation concerns.

Commodities and Alternatives:

Commodities experienced a general decline during the quarter, with natural resource stocks staying relatively flat. Master Limited Partnerships (MLPs) bucked the trend, returning 5.4% during Q2 despite broader commodity challenges. Global private equity investments outperformed global developed stocks over recent trailing periods, highlighting the appeal of this asset class.

Market Outlook:

Looking ahead, the global economic recovery is expected to continue, supported by ongoing fiscal and monetary policies. While economic growth has shown resilience, uncertainties persist, including geopolitical tensions, trade disputes, and inflationary pressures. Investors should closely monitor central bank policies and inflation trends, as these factors can significantly impact market sentiment. The potential for higher interest rates and inflation expectations may result in market volatility and impact asset performance across equities and fixed income.

Geographically, developed markets, especially the US, remain attractive, but valuations are becoming stretched. Investors may find more reasonably valued opportunities in international developed stocks and emerging markets, especially if the US dollar weakens, benefiting emerging market economies.

In the equity market, large-cap growth and technology sectors have shown significant strength, but concentration risk poses potential downsides if sentiment towards these sectors becomes less ebullient. Diversification across sectors and styles remains prudent for risk management. In fixed income, credit spreads have tightened, suggesting a more favorable credit environment. However, investors should closely monitor interest rates and inflation developments, which can impact bond performance. In the alternative space, private equity investments may offer compelling returns and diversification benefits. Infrastructure stocks may present opportunities as governments continue to invest in critical infrastructure projects.

Overall, while the global economy shows signs of recovery, investors should stay vigilant, maintain a balanced portfolio, and remain prepared for potential market fluctuations amid evolving economic conditions and policy decisions.


[1]  The information found in this document was derived from Bloomberg, Bureau of Labor Statistics, Burgiss, Datastream, Federal Reserve, Hedge Fund Research, Mercer, MSCI, MSCI Barra, NAREIT, Russell, Standard & Poor’s, St. Louis Fed, The Wall Street Journal, Thomson Reuters, and InvestorForce. While we believe these data sources and information to be reliable, its accuracy and completeness are not guaranteed. The views contained in this presentation represent the opinions of GYL Financial Synergies, LLC as of the date hereof unless otherwise indicated. This and/or the accompanying information was prepared by or obtained from sources GYL Financial Synergies, LLC believes to be reliable but does not guarantee its accuracy. The report herein is not a complete analysis of every material fact in respect to any security, mutual fund, company, industry, or market sector. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance does not guarantee future results. This document contains forward-looking statements, predictions and forecasts (“forward-looking statements”) concerning our beliefs and opinions in respect of the future. Forward-looking statements necessarily involve risks and uncertainties, and undue reliance should not be placed on them. There can be no assurance that forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements.