Equities Q2 2023


Despite the ongoing global challenges, the stock market has shown impressive resilience in 2023. The S&P 500 Index has returned over 14% year-to-date, and the MSCI’s All Country Worldwide Ex-U.S. Index is up by more than 8%. However, these aggregate numbers mask the reality that 46% of stocks in the S&P 500 Index are in the red this year, and only 27% have outperformed the market. This disparity is due to the market capitalization weighting of the S&P 500 Index and the exceptional performance of its largest companies.

Key Drivers

Three factors have driven the U.S. stocks’ average increase in 2023.

First, the U.S. economy has shown unexpected resilience despite rising interest rates. The initial narrative of a looming recession and overly pessimistic corporate profits has been proven wrong, as the consensus EPS estimates for the S&P 500 Index have only fallen by 4% to $219.

Second, valuations have played a significant role. At the start of the year, valuations were lower due to anticipated weaker trends and continued interest rate increases. However, improving sentiment and expectations that interest rates are nearing a peak have sent valuations higher.

Lastly, the exceptional performance of a small number of large companies has significantly influenced the S&P 500 Index. Companies like NVIDIA Corp and Meta Platforms have seen their stocks return nearly 200% and 140% respectively, pulling the Index higher.


Predicting the direction of the overall stock market is always challenging, it is even more so presently for two main reasons. First, the direction of mega cap technology stocks, which have risen significantly, and their prominence in the overall market, are difficult to forecast. Second, while some areas of the market that have not participated in the rally are trading at attractive valuations, the full impact of the rise in interest rates and persistently high inflation is yet to be felt by U.S. consumers and the economy.

The Federal Reserve is determined to bring inflation under control, even at the expense of the economy. Recent hawkish comments by Fed Chair Jerome Powell suggest that the U.S. economy may not yet be in the clear. If a recession occurs, we may see a significant drop in earnings estimates and stock prices.

However, we maintain that over time, stock prices tend to follow earnings. If the consensus 2023 EPS estimate of $219 and $245 for 2024 are accurate, the market looks reasonable and has room to go up if the economy stabilizes while inflation continues to decelerate.


As we exit the second quarter of 2023, we are slightly more optimistic about the economy but more lukewarm on the stock market. Some parts of the market may have run too far while others present good buying opportunities. Despite persistent inflation, the economy is generally trending in the right direction. The Fed’s actions, while potentially causing more market volatility, are being taken for the long-term benefit of the economy and country.  Our recommendation remains unchanged. Plan for and communicate cash needs so that we may avoid raising cash by selling stocks at depressed prices and stay invested in accordance with your long-term goals.

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