Second Quarter 2023 Market & Economic Update

Hi, Scott Nelson, Senior Wealth Manager of Boulay Financial Advisors, with our new mid-quarter update video covering the big economic themes so far in 2023.

We start with what has been the biggest economic issue of the past year – that being elevated inflation and rising interest rates. As for inflation, we saw it continue downward in April as measured by the Consumer Price Index, which came in at 4.9% – its lowest level now in two years.

To combat inflation, the Federal Reserve has continued to raise its Federal Funds interest rate 2023, albeit in smaller increments. The Fed raised the interest rate a 0.25% in March and then again in May. This puts the Fed Fund’s interest rate now a full 5% higher than it was 16 months ago.

The health of the nation’s banking system became a concern in March. The $200 billion Silicon Valley Bank was seized by bank authorities in March to stem a run on the bank’s assets. Signature Bank, a $100 billion bank, was taken over soon after. This sparked weeks of speculation on which other mid-sized banks were also vulnerable. Top of that list was First Republic Bank, which received a cash infusion from some bigger banks in April, but in the end agreed to be purchased by J.P Morgan Chase on May 1. A common vulnerability of these failed banks was that they catered to customers with very large deposits. All three banks had among the highest levels of deposits above the FDIC’s $250,000 maximum insurance limit. Silicon Valley Bank was at the top of this list with nearly 94% of its assets being uninsured. So, it would appear that just a few big bank clients could abruptly move their money and put these banks into trouble.

 Looking at that state of U.S. economy, we see that it’s still a bit of a mixed bag. The economy grew anemic 1.3% in the first quarter of 2023, but the job market remains a bright spot in the economy with the unemployment rate reported at 3.4% in April and even the unemployment rate for teenagers fell to a decades low of 9.2%.

The devil is in the details, though. Initial hiring numbers for 2023 have been announced as being quite robust, but the Bureau of Labor Statistics has come back several times and revised those numbers downward. The number of hires in the first quarter has now been revised down 193,000.

The rough patch for the U.S. housing market continues as home prices fell 3.4% in April. Home sales are now down 23% from a year ago. Home prices have started to drop but only about 1.7% year over year. As we enter the real estate busy season, inventory for homes has increased a bit, but the low inventory numbers still resulting in about 73% of homes being sold in less than a month.

So what has this all meant for the stock and the bond markets? Slowing interest rate hikes in 2023 helped the bond market initially rebound and was up to start the year about 3%, but in the second quarter the concerns about government debt ceiling and the banking system have led the bond markets overall and give up about 2% of that. High yield bonds are a bright spot, though, as they remain up over 3% in 2023. U.S. stock markets continue to rebound from 2022’s pullback with an overall market up nearly 10%. It’s been powered by growth stocks, in particular, now up over 19& for the year, and they’ve gained back a bit over half of what they lost in 2022. Value stocks have given up a couple of percent in the second quarter on concerns about the banking industry. International stocks are also up this year – about 6.5% overall. This may have been powered by the approximate 11% gain in the European stocks to date. Additionally, emerging market stocks have leaked out about 2.5% gain despite the Chinese stock market being down over 6% to start 2023.

Well that is your update for the second quarter 2023. As always, if you have any questions about the topics covered in the video, reach out to your Boulay Financial Advisor. To learn more about Boulay, please check out our website or email us at learnmore@boulaygroup.com.