Market Update: Q2 2023

The economy has held up far better than most expected this year. Higher interest rates and fewer supply chain issues have helped bring inflation down and slow economic activity without significant job losses. The Federal Reserve's preferred inflation metric, “Core" PCE, which excludes the volatile food and energy categories, was 4.1% (June 2023), down from 4.6% the month before, and was at its slowest annual rate since September 2021. While this is far from the Fed’s 2% target, it should reduce the likelihood of future interest rate hikes. It has also led to many market forecasters pushing out, or even eliminating, calls for a recession in the next year. This increased optimism has led investors back into stocks after a painful 2022. While the first five months of gains were driven by only a handful of large tech stocks, more recently, we’ve seen stock gains broaden to smaller companies and cyclical sectors.