June 2023

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Monthly Market Summary

The S&P 500 gained +0.5% in May, outperforming the Russell 2000 -0.8% return. Tech was the top performer, gaining +8.9%. Energy was worst, performer returning -10%. 

Corporate investment grade bonds produced a -1.8% total return as interest rates rose, underperforming corporate high yield bonds’ -1.2% total return. 

The MSCI EAFE Index of developed market stocks traded down -4.0%, underperforming the MSCI Emerging Market Index’s -2.4% return.

May 2023 Recap: Stocks Continue to Diverge & Treasury Yields Rise

May marked a continuation of this year’s investment trends. Large cap stocks outperformed small cap stocks for a third consecutive month, while Growth stocks continued to outperform Value stocks. The Nasdaq-100 Index of growth stocks returned +7.9% in May. Congressional debt ceiling negotiations were the primary focus in the credit market, where a sharp rise in yields led both Treasury and corporate bond prices to decline. The Bloomberg Commodity Index traded lower for a sixth consecutive month, with declines across energy and metals. While falling commodity prices could help ease inflation, the declines suggest demand is softening and economic activity is slowing.

One theme we are watching closely is the return gap within the equity market. As an example, the S&P 500, which weights companies by market cap, is up +9.7% year-to-date. However, the equal-weighted version of the S&P 500 has posted a -0.7% total return, underperforming the market-cap weighted version by -10.3%. This performance dispersion theme is also evident across S&P 500 sectors. Technology, Communication Services, and Consumer Discretionary each traded higher in May, YTD returns exceeding +17.5%. In contrast, the eight remaining S&P 500 sectors each traded lower in May with negative returns thus far in 2023. The sizable performance gaps indicate that while the S&P 500 is trading higher, the gains and strength are concentrated in a relatively small group of sectors and mega cap stocks.

Investors Excited by the Artificial Intelligence Revolution

One of the factors contributing to Technology’s strong 2023 return is excitement around artificial intelligence, or AI. AI, which refers to the ability of a digital computer or a machine to perform tasks commonly associated with human intelligence, is being hailed as the next big technological advance. It has the potential to revolutionize the economy by increasing productivity, replacing and/or automating certain jobs, and expanding corporate profit margins. Companies are mentioning AI more on earnings calls, and investors are rushing to find the big AI winners. While AI has the potential to be transformational, we believe the AI revolution is in its early innings. 

IMPORTANT DISCLOSURES 

Clare Market Investments, LLC is a Registered Investment Advisor. This material is for informational purposes only. It is not intended as and should not be used to provide investment advice and is not an offer to sell a security or a recommendation to buy a security. The information is derived from sources believed to be reliable and accurate as of the date of this report, but Clare Market has not audited this information to validate accuracy. Further, information may be at a point in time and subject to change. This summary is based exclusively on an analysis of general market conditions and does not speak to the suitability of any specific proposed securities transaction or investment strategy. Judgement or recommendations found in this report may differ materially from what may be presented in a long-term investment plan and are subject to change at any time. This report’s authors will not advise you as to any changes in figures or views found in this report. Investors should consult with their investment advisor to determine the appropriate investment strategy and investment vehicle. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. Except for the historical information contained in this report, certain matters are forward-looking statements or projections that are dependent upon risks and uncertainties, including but not limited to such factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle. See claremarket.com for additional information and disclosures. © 2023 Clare Market Investments, LLC. All Rights Reserved.

"Before we work on artificial intelligence why don’t we do something about natural stupidity."

          - Steve Polyak