June 2023 | Global Equity Markets Review
The market axiom “Sell in May and Go Away” did not hold true in June. The S&P 500 Index return was 6.61%, with higher returns in the S&P Mid Cap 400 and Small Cap 600 of 9.16% and 8.23%, respectively. All eleven economic sector returns were positive, with cyclical industry groups outperforming non-cyclical groups by the widest margin in 2023. Individual stock breadth was also exceptional, with 86% of the stocks in the S&P 1500 Composite closing higher in June, a high water mark this year for underlying market strength. Enthusiasm around A.I. drove large cap growth returns over value, while below the most significant 200 stocks, the differences between growth and value styles were minimal. The S&P 500 reached the highest point of the year at the end of June and the highest level in 14 months.
A confluence of events propelled the market higher in June. The rising tide of A.I.’s potential has yet to crest, and it may be some time before investor enthusiasm recedes. Nevertheless, it is critical to point out that investment trends are quickly reflected in valuations and often go to extremes. During this period, great ideas are divorced from great stocks, and investors are flooded with disappointing results. The graph below illustrates the distribution of price to earnings to current fiscal year estimates for the popular SPDR Sector ETFs.
Technology and Consumer Discretionary (the latter dominated by Tesla and Amazon) valuations are well above the rest of the sector ETFs today. The other major event in June was the Fed’s decision to pause after ten consecutive hikes with a cumulative increase of 5.0%. Investors cheered the Fed’s decision and broadened their interest toward market sectors geared to higher markets. Beta, a measure of price volatility to overall market movements, was a factor back in favor after a disastrous 2022. The chart on the below compares the return profile of stocks in the broad market ranked by beta. Investors have increased their risk appetite (buying high beta stocks) beyond A.I.-themed opportunities to include market segments with a history of exaggerated movements to the market. While new technology trends and enhanced risk strategies may appear tempting at first blush, most investors are better suited to having exposure to these themes inside a diversified equity portfolio.
International equity markets rose with the U.S. indices, although with slightly less enthusiasm. The S&P Global BMI ex-U.S. return was 4.43%. The S&P Developed BMI Index and S&P Emerging Markets Index produced similar returns during the month at 4.46% and 4.33%, respectively. The dollar declined 1.36% in June, supporting international markets. The outperformance of large growth companies often results in the relative performance pattern between U.S. and International markets due to the dominance of American companies in the global technology sector. Given the recent strong performance of many U.S. technology stocks, any loss of leadership in this sector should help the comparative returns of global bourses.
Notes & Disclosures
Index Returns – all shown in US dollars
All returns shown trailing 6/30/2023 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:
- The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
- The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
- The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
- The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
- The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
- The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
- The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
- The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
- The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
- The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
- The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
- The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
- The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.
An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.
Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.
- The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
- SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
- West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
- CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market's expectation of 30-day volatility.
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