June 2023 - Market Update

Data Dashboard

Stock Market

During June, the stock market delivered a strong performance, with a gain of 6.61%. This marks the highest monthly return achieved since April 2022, bringing the year-to-date total to an impressive 16.88%. The consumer discretionary sector emerged as the top performer in June, giving a return of 12.23% for the month. Following closely behind were the Industrials sector with an 11.26% return and the Materials sector with an 11% return.

Unlike the previous months, small and mid-cap stocks outperformed large-cap stocks during the month of June. Notably, all sectors concluded both the month and the quarter with positive returns, reflecting a positive overall market sentiment.

June Monthly Returns (by US Sector)

Bond Market

The Bloomberg US Aggregate Index experienced a decline of 0.8% quarter-on-quarter, marking the first decrease in three quarters. This was due to rising interest rates, driven by expectations of a more aggressive tightening cycle by the Federal Reserve. This was offset by the resilience of the US economy, which counteracted the ongoing decline in inflationary pressures.

Treasuries witnessed a decline of 1.4% quarter-on-quarter, marking the first decrease in three quarters. This can be attributed to the strength of the US economy and the increasing expectations that the Federal Reserve would raise interest rates at least one or two more times. The yield curve between 10-year and 2-year Treasury bonds inverted to its lowest point in almost 40 years, with a difference of -104 basis points. This inversion occurred as shorter-term yields increased at a larger rate than longer term yields. In credit space, high-yield bonds continued to rally.

Economics

Gross Domestic Product (GDP) recorded a quarter-on-quarter growth rate of 2%, which represents a 0.7% improvement compared to the previous quarter. A significant factor driving this growth has been consumer spending, which has risen from 3.8% since October 2020 to 4.2%, serving as a key engine of the economy. Moreover, the latest survey data indicates a decline in initial jobless claims, decreasing from 264k to 239k.

In June, the housing sector showed mixed performance. There was a notable upswing in housing starts by 21.7% compared to the preceding month. Building permits recorded an increase of 5.6%, while existing home sales experienced a slight rise of 0.2%. In cotrast, the index measuring home prices, particularly the April Case Shiller 20-City Composite, recorded a year-on-year decline of 1.7% for the second consecutive month, marking its most substantial decrease since 2012.

Tactical Trades

For our Tactical ETF Portfolio, we reduced our exposure to European equities, moving more into US technology-related equities. In the Tactical Stock portfolio, we increased our positions in the Financial and Communications sectors, while decreasing positions in Consumer Staples and Healthcare sector.

As for our Low Vol Fixed Income Portfolio, we ended the month of June in a much shorter duration portfolio than prior months. We turned over our entire portfolio of TIPS and intermediate-term corporate bonds for short-term corporates, floating rates and convertible bonds. Each of these sectors have performed moderately well due to increase in yields.

General Client Considerations

Below is a table showing the change in contribution limits for 2023:

We look forward to hearing from you!

Thanks,

The Friedenthal Financial Team

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