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Q2 2023 Market Commentary Thumbnail

Q2 2023 Market Commentary

Markets & Economy

Here's our 10-minute take on what happened in the markets in the second quarter of 2023.


Clayton Johnson:
Hi everyone, I'm Clayton Johnson with Squire Wealth Advisors and I've got here with me today, Nathan Larsen, one of our partners in the the Wealth Management team and we wanted to take just a few minutes to talk about what happened in the last quarter and what's been going on in the markets and and what to expect and why, why not to be too worried. So one of the things we wanted to share here, I'm going to pull up a slide that shows what's happened in the last quarter.

Clayton Johnson: You can tell that we've we've recovered a bit from last year. 2022 was not an excellent year in the markets, but the start of this year from January through June, we've had positive returns for U.S. Stocks of 8 1/2% international markets are doing well and even global bonds are doing well. US bonds are down a little bit and and you can tell as well that over the last 12 months returns have been good. So despite what happened in 2022, the second half of 2022 and even the beginning of 2023 has been doing pretty well for U.S. Markets, international markets? We're seeing on the economic side employment strong consumers are still spending the housing market stabilizing. So even though a lot of economists were predicting a recession for 2023, we haven't seen that yet. In fact, the the economics has has really shown the country that things are going well. There's a few indicators that that they call leading indicators that that are that for recession, but overall we're not too concerned, Nathan. Any other thoughts? Or anything that comes to mind as we're talking about what's been happening in the market.

Nathan Larsen: It's very encouraging this this year's been great so far, especially with all the turmoil we had early on in the year, you know in the first quarter we had the bank scares with Silicon Valley and some of the other banks and those have seen those fears have seemed to kind of subside a bit here and very strong performance in quarter two, mostly LED in the stock market mostly led by large growth companies. But overall, most stocks are up. So good sign for sure.

Clayton Johnson: Yeah, I agree. Something you said reminded me that based on surveys of professional forecasters, it it appears in the risks of recession, are declining. So even though they were saying, hey, you probably heard a lot of that, the news, the, the signs of that, that that are are declining in that, OK, Nathan, can you tell us a little about kind of what's been going on with US interest rates and the fixed income market? We've seen a lot of action in that, honestly, in the last six months or so.

Nathan Larsen:  Yeah, even even longer than six months.We know we had really high inflation and and scares for longer than expected high inflation and the Federal Reserve did a great job jumping in and and bumping interest rates quickly is probably as quick as we ever have and that that puts some stress on the bond markets. But the good news is that that bond interest rates are are reasonable now you know you can actually earn some decent interest rates on bonds and fixed income. U.S. Treasuries are are up in the 5% range for one year. One of the interesting things is we've got sort of an inverted yield curve, meaning short term interest rates are higher than long term interest rates, which is kind of backwards than what we're used to. And what we expect and in the past that's been a little bit of the one of the indicators for recession. But really what it's telling us this time, I think is that interest interest rates had to come up to to fight that inflation. Nathan Larsen And it's worked. Inflation's on its way down. It's still not exactly at the the level that we want, which is around 2 to 3%. But it it's come down a lot and it's on its way down and the inverted yield curve is actually the collective wisdom of the the market pricing in interest rate decreases in the future or or stabilizing the graph here shows that they kind of stabilize around the three to 4% range. So, umm, good news is that interest rates are are higher for savers and and bond investors not so great news for mortgage borrowers but it is we've been historically low and so the rates now are probably closer to to what they should be and maybe more of an average and we've just had super low rates for so long so.

Clayton Johnson: No, and and what we're seeing too in this chart that we're showing here on US interest rates, that yellow line is showing what the yield curve was and of last year basically end of Q2 2022. And you can see how the interest rates have risen just in the last year from still still inverted. But you're seeing there much higher rates in the light blue is where we're at right now.

Nathan Larsen: Yeah. As far as the takeaway for investors, it's this is extremely difficult to predict. And so the the prudent approach here is to kind of keep your your terms in line. So we we like to to invest in in an intermediate term approach and with the rolling approach. So we never like to go longer than five years out on maturity and within that five year we almost have 1/5 of of the investments rolling each year. And so we kind of fight that that risk, that interest rates swing either way by doing it that way so.

Clayton Johnson: That's great, Nathan. The last thing I want to just mention here because we get this a lot. I'm sure, Nathan, you've had a lot of clients. I've had a lot of clients come to me and say, hey, with the recession coming up, should I be changing My Portfolio? Should be adjusting my investments? The chart that we're showing right now is a really fascinating illustration showing what happened back in the 08 crisis. You can see here that Gray space is showing when the recession actually was and you can tell that at the beginning of the recession that the stock market started to go into bull market terror bear market territory and started to drop.

Clayton Johnson: But because of the way recessions are announced and decided, it wasn't until we were almost all the way through the recession that it was announced, by the way we bid in a recession and the market, the stock market had almost dropped and reached its very bottom point as they made that announcement. And so the takeaway from this and then you can see too, the end of recession wasn't announced until after the recession had actually ended, right? It's just a weird way things work, right? So whether or not a recession is coming, we could be in one right That's that's the point is you could be in a recession, but the recession and the state of the stock market, they're they're not the same thing. They're different. And so you don't want your concerns about a recession or concerns about the economics that the economy necessarily to determine what you do with your portfolio because the portfolio is already priced all that in.

Nathan Larsen: Yeah.

Clayton Johnson: And usually when you start to make the decision that we make it at the wrong decision, that the wrong time you pull your money out or you make that change right at the bottom when you're when you're losing money. And that's the last thing you want to do. So if you're worried about a recession or you have any kind of concerns like that, it's still good to understand your strategy and kind of stay long term focused on on the way your strategy works out because that's usually the the best practice. What we're gonna say, Nathan?

Nathan Larsen: Yeah and really, you just need to manage risks based on your goals and we will help you do that. Last year's great example of this, the the market went down in 2022, partly because there was the market was expecting a recession in 2023 and so market what goes down before the the expectations even happened and then we hit 2023 and the market goes up already. So definitely impossible to to time and the prudent approach is to just stay diversified. Make sure your risk tolerance matches with your goals and try and remove the emotion from. Invest as much emotion from investing as possible, and that's really our job is to help coach you through this so that you can do what you need to do in life. What you need and want to do and and not worry about the money so much so.

Clayton Johnson: Period. Well, Nathan, thanks for for joining and and adding your your wisdom to this and appreciate those who've listened, watched out if you have any, if you have any questions, please reach out to us. We'll have our information in the notes below and you can ask more and follow up with us. Alright. Thanks.

Nathan Larsen: Thank you.

Contact Info: 
Clayton Johnson

Nathan Larsen