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2023 Mid-Year Outlook

2023 Mid-Year Outlook

July 03, 2023

Examining the Mid-Year Outlook for 2023, it appears that the S&P 500 index experienced a 20% increase in the second quarter, marking a transition from a bear market to a bull market. This impressive market growth was primarily driven by the success of mega-cap growth stocks, fueled in part by the excitement surrounding advancements in artificial intelligence.

However, it is worth noting that this surge was predominantly influenced by a select few stocks that hold a significant proportion of the index, with only a slight increase in overall market participation observed in June. Despite the growth witnessed, the quarter did present its fair share of challenges. Congress struggled to reach an agreement on the terms of a bill to raise the U.S. debt ceiling, leading the U.S. Treasury Department to employ "extraordinary measures" to prevent a default. Although concerns arose regarding the possibility of a default, the markets largely dismissed this notion. Economic indicators pointing towards a potential recession have been caused for speculation, but the stock market continues to defy expectations and "climb a wall of worry." This situation begs the question of the stock market rally's sustainability, especially considering its narrow reliance on a select group of stocks within the index.

Many portfolios have struggled to keep up with the performance of the indexes, highlighting the importance of diversification within large-cap stocks. While there are encouraging signs in certain interest-rate-sensitive sectors, such as the housing market, suggesting a positive outlook, we believe a widespread recession is unlikely. A mild recession is anticipated, but it is crucial to be mindful of the high price-to-earnings (P/E) ratios of large-cap growth stocks, as they could contribute to market volatility. Therefore, it is advisable to diversify investments by considering mid-cap, small-cap, and international stocks that boast more favorable P/E ratios when compared to historical averages.

To navigate market volatility effectively, it is highly recommended to seek guidance from your financial professional. They can assist you in staying on track and focused on your personalized long-term plans, ensuring that you make informed decisions amidst market fluctuations.  

The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. A diversified portfolio does not assure a profit or protect against loss in a declining market.