2023 Mid-Year Market Outlook

In our prior monthly updates, we wrote about multiple economic and political factors that led to volatile markets in the first half of 2023.  Yet despite the volatility, market returns have been strong thus far in 2023.  Stock market returns, while broadening in the latter few weeks in the first half, for the most part were led by a narrow group of technology stocks. 

As of Friday, June 23rd the Nasdaq 100 was up 34.91% for the year however, the top 10 stocks made up 59.6% of the index and the preponderance of the year-to-date return was garnered through those top 10 stocks.  On an equal-weighted basis (the return of the average stock, with each stock getting the same weighting), the index returned 15.6%.  Similarly, the S&P 500 earned a 12.95% return for the first half of the year, but on an equal-weighted basis, the return was 1.89%.  In a capital-weighted index like the Nasdaq 100 and S&P 500, it is common for the biggest stocks to dominate performance.  However as of early June, 76% of the stocks in the Nasdaq 100 index and 85% of stocks in the S&P 500 underperformed the overall index.  Hemispheres Investment Management (HIM) is closely watching market data but recognizes that this lag in performance by most of the stocks in each respective index represents an investment opportunity.  HIM remains optimistic about the rest of the year, given the number of undervalued equities the firm has identified, both domestically and internationally, including those that are currently held in client portfolios.

We anticipate less drama in the market for the second half of the year with a US debt ceiling deal in place until early 2025, the Federal Market Open Committee (FOMC) pausing on rate increases for the immediate future, stresses on the banking system stabilizing and signs of that the China-US tensions may be easing.  Given the strong returns in the first half, however, we would not be surprised to see lower returns for the second half of the year.  The following would be a rationale for lower returns in the second half of the year:

  1.  With the Federal Reserve Rate increases, the yield curve is inverted, meaning that longer term Treasury bond yields are lower than shorter term Treasury yields.  Inverted yield curves signal slower economic growth in the future.  This is because interest rate increases reduce corporate profits and drive up the cost of borrowing. The FOMC wisely paused raising rates in the June meeting to assess the effectiveness of previous rate hikes.  The FOMC is hoping it can tame inflation without pushing the economy into a recession.  As indicated in its last meeting announcement, the FOMC indicated that there is a possibility of two additional rate increases during the remainder of the year, if necessary, to achieve inflationary targets.
  2. As sited in an earlier report, bank lending standards have tightened making access to credit more difficult.  Reduced credit access would mean slower corporate earnings which would then be reflected in stock prices. 
  3. The preponderance of stock performance in the first half came from companies developing Artificial Intelligence.  While definite productivity gains will be seen in the future, the timing of the adoption of this technology is unknown and the strong performance of stock prices for these entities could represent a bubble.  A pullback in some, or all, of these stocks should not be a surprise.

Hemispheres Investment Management invests in industry leading companies with solid financial fundamentals.  HIM developed an impressive track record of performance not by buying stocks with strong historical performance, but rather buying these stocks during temporary market dislocations when they trade at value levels.   

We would be happy to answer any questions that you might have.

Hemispheres Investment Management


Rebecca Holden, CFA                                                                                      

Director of Domestic Research                                                               


[email protected]                                                                        

Michael Hart, CFA



[email protected]