Endowus Q2 2023 Market Update and Outlook — The Big Tech Rally
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Endowus Q2 2023 Market Update and Outlook — The Big Tech Rally

Sep 2023
Jul 2023
The Big Tech equity rally: Q2 2023 market outlook and commentary
  • US stock market indices enjoyed a healthy rebound in the first half of 2023, led by stocks deemed to benefit the most from artificial intelligence (AI).
  • That said, uncertainty lies ahead in the second half of 2023. Investors will assess how central banks balance between a growth pullback and cooling inflation. 
  • Global equity markets were up by about 6.2% in Q2 2023 in US dollar (USD) terms. On the fixed income front, as volatility receded and the prospect of a soft landing increased, bond yields rose again. 
  • For details on how the Endowus portfolios performed in the quarter, refer to this article or watch the video below.

Big Tech leads the way

The Nasdaq 100 index was down more than 32% in 2022, and in a stunning reversal, in just six months, it had recouped all the losses from last year as it gained more than 39% in the first half of 2023.

How did this happen? It all started with two letters — AI. As ChatGPT hit mainstream media, stocks that were deemed to benefit the most from developments in artificial intelligence started to see a pop in share price as investors raced to gain exposure to this megatrend.

The S&P 500 index too enjoyed a healthy rebound as it went up by close to 17% in the first half of 2023, nearly recouping its losses from 2022 (-18%). The disconnect and the large discrepancy in performance between the two indices mostly came from the weights in the seven mega technology stocks — Apple, Amazon, Alphabet (Google), Meta (Facebook), Microsoft, Nvidia, and Tesla.

As of 13 July 2023, these top seven mega-cap tech stocks made up about 28% of the S&P 500 index and 60% of the Nasdaq 100 index. (The calculations were made prior to the index’s special rebalancing taking effect before market open on 24 July 2023.)

Chart: Various market indices from January 2023 to June 2023, in USD. Nasdaq 100, S&P 500, MSCI World Index and MSCI Emerging Markets Index. Source: Endowus Research, Morningstar

Can this narrow rally be sustained? Will it broaden out to the rest of the market? Our view remains that this has always been hard to predict. Uncertainty lies ahead in the second half of 2023. Investors will assess how central banks balance between a growth pullback and cooling inflation. Recession risks seem to be receding, and a soft landing in the economy is starting to look more possible. However, concerns persist on how inflation coming from wages and services is still sticky.

In the US, the Federal Reserve’s 2% inflation target remains, and eyes are on the Fed to see how they navigate the “Goldilocks” situation. If they read inflation wrong and tighten too much or too quickly, they may trigger a sharp economic downturn as businesses get overwhelmed by much greater financing costs — or in other words, the cost of borrowing — and consumers pause on spending.

Chart: Central banks - inflation vs growth slowdown. Inflation continues to cool in the US, although the underlying measure of price pressures remains elevated. Source: US Bureau of Labor Statistics, Bloomberg.

We don’t know how much more the Fed and other central banks will raise rates in the second half of 2023. When it comes to the Fed, the markets seem to have priced in one or two more rate hikes. Because of this uncertainty, it is advisable to stay invested in a globally diversified portfolio, with fixed income exposure along different parts of the yield curve and sectors, as well as equity exposure in both developed and emerging markets. 

For those interested in getting exposure to the AI theme, they can consider a portfolio that places focused, strategic allocations on core technology sectors, as well as non-traditional technology sectors. These include companies that perhaps do not originate from the industry, but will leverage technology to enhance their competitive advantage within their specific sectors and create long-term shareholder value.

Q2 2023 market update

Global equity market 

In the equities space, the global equity markets, as represented by the MSCI All Country World Index (ACWI), were up by about 6.2% in Q2 2023 in US dollar (USD) terms. 

Growth stocks, in general, outperformed value by a wide margin of more than 600 basis points. The difference was even more stark when comparing the performance year-to-date.The MSCI ACWI Growth Index returned 24.3% versus a 4.3% return for MSCI ACWI Value Index in H1 2023, largely driven by US technology stocks. In a repeat of Q1 2023, large-cap stocks again outperformed small caps in Q2 2023.

The US as a market did very well in Q2, even as its performance was second to Japan. The rest of the developed markets turned in a lacklustre quarter but still outperformed the emerging markets which were almost flat for the quarter. China’s decline of nearly 10% weighed heavily on the performance of the overall emerging markets (EM) region. In a surprising twist, EM value stocks outperformed EM growth stocks by about 3%.

Global fixed income market

On the fixed-income front, as volatility receded in Q2 2023 and as the prospect of a soft landing increased, bond yields rose again. 

Credit was one of the strongest performing sectors for the quarter. High-yield (HY) outperformed investment-grade (IG) corporate, and investment-grade (IG) corporate in turn outperformed Treasuries. Inflation-linked bonds, known also as linkers, were the worst performers, partly due to their longer duration and maturity. 

Duration dragged on fixed-income performance as longer-dated bonds generally underperformed shorter-maturity bonds. Emerging-market debt was also one of the top performers in Q2.

Commodities and gold

The S&P GSCI Index posted a negative return of 2.7% for the second quarter of 2023, with energy and industrial metals leading the decline. The industrial metals sector was down about 9.1%, and energy retracted 11.6%. Within industrial metals, zinc was the worst performer, with a return of -17.3%. Gold was mildly negative at -2.5% while the agriculture and livestock sector eked out a positive return of 0.9%.


For details on how key Endowus portfolios performed in the quarter, click here. Watch our webinar on Q2 performance and market insights at this link.

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With digital wealth platform Endowus, you can plan and manage your money — whether held in cash, CPF, or SRS — by investing in globally diversified, intelligent, low-cost portfolios seamlessly. To get started, click here.


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