Chart of the Month | June 2023

Overall, this year’s market recovery is a reversal of last year’s weakness. The S&P 500 has risen about 12%, while the NASDAQ has gained more than 26%. Current year gains can be attributed to both macroeconomic factors, such as slowing interest rates, the Fed pause on rate hikes and improving inflation, as well as sector-level strength in technology stocks. Companies related to artificial intelligence (AI) have seen especially sharp gains to their share prices.

Investors should tread carefully when looking at the current landscape. This year’s enthusiasm around AI has elevated the NASDAQ. Significant advances in AI will continue, but not every company involved in AI will succeed. There will undoubtedly be a number of losers. When looking at the S&P 500, investors should note the lack of market breadth when assessing year-to-date returns. A handful of Mega-Cap stocks (MSFT, AMZN, AAPL, GOOGL, META, TSLA and NVDA) have been the driving force behind the performance of the S&P 500 this year. These seven stocks are up more than 40% on a combined basis, while the remaining 493 companies in the index are up only a combined 1%. The market is much stronger if returns are broad-based. We must also note the historic Fed interest rate increases have a delayed impact on the economy and have yet to be fully felt. As investors, there is always a desire to follow the trends of the current environment. History shows, however, the best course of action is to stay focused on long-term investment objectives.

Watch for more market insights and commentary each month from Bell Bank.