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Evolve Wealth Advisors - Quarterly Market Update Q2 2023

Equity markets advanced in the second quarter of 2023 despite stubbornly high inflation and a tight Federal Reserve rate policy stance. Leading the charge was the technology-heavy Nasdaq Composite Index, which increased 11.2%, followed by the S&P 500, which advanced 8.7%, and the Dow Jones Industrial Average up 4.0% for Q2 2023. Notably, the Nasdaq Composite posted its strongest start to the year on record, advancing 32.7% from the end of 2022. While markets posted strong advances, the advance were driven by a concentrated number of constituents and not broad based. Of particular interest have been asset flows towards companies that are tied to digital disruption, notably artificial intelligence (AI). Performance of Apple (+17.6%), NVIDIA Corporation (+52.3%), Advanced Micro Devices (+16.2%), Tesla (+26.2%) and Meta Platforms (+35.4%) was notable and helped drive the Nasdaq Composite and the S&P 500 higher for the second quarter of 2023. This divergent security performance relative to other securities and sectors has given us increased concern as it relates to asset bubbles. While we do not dispute the advantages and potential profitability characteristics of AI, the valuations afforded to these companies are reminiscent of the dot com bubble of the late 1990s.


Fixed income indices were relatively flat in the second quarter. Notably, the Bloomberg U.S. Intermediate Aggregate Bond Index decreased 0.8% in Q2 2023, as the Federal Reserve continued on its path to tame inflation from its current 4% to 5% range to 2%. While the U.S. Fed recently paused raising rates in mid June—given how far and fast the Fed has moved—further increases are on the horizon since inflation has remained high and the U.S. economy has been shockingly resilient. The U.S. is not the only country facing this conundrum. Canada and Australia, for example, raised rates and then paused. Given that their economies saw neither lower inflation nor economic slowdowns, the central banks of both countries resumed rate increases in June.


Inherently, the Fed’s goal through tight monetary policy is to temper demand, thus cooling the economy. This strategy, though, has the potential to push the economy into recession. However, we have not witnessed the demand destruction that is characteristic of rate increases thus far. Typically, when a central bank raises short-term rates, unemployment increases, the housing market softens, corporate defaults rise, equity prices decrease, and long-term bond yields increase. While all these things happened during the first few months of the Fed’s tightening cycle, all have reversed course. Employment is strong, housing prices have improved on low inventory levels, and corporate defaults are limited because households and companies locked in long-dated borrowings at low rates during the pandemic. Additionally, equities (particularly technology stocks) have increased, and long-term bond yields have remained range bound. The U.S. 10-year Treasury yield ended the second quarter at 3.8%, which is in line with where it started the year and below its 2023 high of 4% at the beginning of March. Adding further support to the economy have been relatively stable and lower energy prices, with WTI crude oil finishing the quarter at $70 per barrel and natural gas under $3 per mmbtu. Given this backdrop, we see a higher interest-rate environment as inevitable in order to bring inflation back towards the longer-term target.


Even though macro uncertainty remains elevated, equities continue to present attractive returns for investors over time and should remain a cornerstone of a portfolio, in our opinion. Given the high valuations afforded to certain technology companies that carry significant weightings within the Nasdaq Composite and the S&P 500, we believe that better value resides in the Dow Jones Industrial Average and to a lesser extent in the S&P 500. This belief is reflected in the distribution of the weightings of our equity holdings.

Overall, we remain bullish on the U.S. economy longer term, notwithstanding the current uncertain economic environment. We continue to believe equities offer the most upside potential, while fixed income has become more attractive given the prevailing interest-rate environment.


To learn more about Evolve Wealth Advisors LP, please visit our website at www.evolvewealthadvisors.com. Should you have any questions regarding your account or how Evolve Wealth Advisors can help with your future estate or retirement planning needs, please contact Peter Henry, CEO at 818-970-6940 or Patrick Kinney, COO at 503-490-0273.






Disclosures:

The market commentary appearing above has been prepared by personnel of and for Evolve Wealth Advisors, LP. The information contained within the commentary is provided as general market commentary only and does not constitute any form of regulated financial advice, legal, tax, or other regulated financial service. It is not considered to be investment research or a research recommendation, as it does not constitute substantive research or analysis. Any charts or graphs do not reflect past or current recommendations by Evolve Wealth Advisors and should be considered an academic treatment of empirical data. Investors should consult their financial advisor when applying the assumptions of any chart or graph.

Evolve Wealth Advisors’ commentary is not directed to, or intended for distribution to or use by, any person or entity who is a resident or citizen of or located in any municipality, county, state, country or other jurisdiction where such distribution, publication, availability, or use would be contrary to any law or regulation, or which would subject Evolve Wealth Advisors to any registration or licensing requirement within such jurisdiction.

The foregoing market commentary does not purport to contain all the information that an interested party may desire or require to make an investment decision, and the information provided is not intended as a sufficient basis on which to make an investment decision. It is intended only to provide the observations and views of the author and for educational purposes only and should not be used to predict security prices or market levels. While it has been derived from sources believed to be reliable, Evolve Wealth Advisors does not represent or warrant its accuracy or completeness. It is not intended as a solicitation for a particular investment, and it may be changed at any time, without notice, by Evolve Wealth Advisors and its personnel. Evolve Wealth Advisors accepts no liability for losses arising from the use of its market commentary. Investors should seek investment, financial, and other advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that past performance does not guarantee future performance. No investment is guaranteed: every investment involves an element of risk of loss, partial or complete.

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