Market Musings 7/18/2023

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

A bullish 1H rebounds from 2022’s losses. Heading into the 2H, we see markets moving on rate hikes, recession expectations and AI…

The S&P 500 ended the first half of 2023 up +16% and into a new bull market up +24% from the October 2022 lows.

The 1H was largely driven by a #RiskOn rally with strong outperformance in growth sectors like Technology, Communications and Consumer Discretionary. Optimism around the end of #RisingYields and the ChatGPT #AI revolution fueled very bullish investor sentiment. Meanwhile, last year’s #RecessionResilient winners like Healthcare and Consumer Staples pulled back and Financials ran into sector stability issues with the #BankingCrisis.

As we head into the 2H, here’s the trends we see moving markets:

We continue to see the market underestimating the Fed’s aggressiveness with #RisingYields. Next week’s meeting seems like a lock for a rate hike and the Fed may tack on another before the year is over. Markets seem to think that’ll be the peak with #FallingYields starting quickly after. Investors have been consistently wrong on #RisingYields and we’re getting the feeling that they’re jumping the gun on #FallingYields too. We’re positioning portfolios with the expectation of remaining in a high rate environment for longer.

While consumer spending has remained resilient despite surging inflation, we’re starting to see some cracks. First, #LaborMarkets seem to be cooling which could lead to higher unemployment and slower wage growth. Second, credit seems to be deteriorating with reports of increased personal debt and lower credit are getting denied. We believe the consumer spending strength may have been temporarily bolstered by credit, but could weaken with time into even a light #Recession2023.

We’re very optimistic long-term for #AI and don’t see the hype as just this year’s “Metaverse”. 🤣 While #AI isn’t new, recommendation engines and learning models have been around for a long time. However, large language models like ChatGPT are changing the game with their versatility and ability to emulate human interaction. (Even Ursa is diving head first into ways for #AI to bolster our curated investing experience!) As we’re already seeing, we expect the surge of infrastructure investment to continue to support the sector-agnostic race to integrate services, software and products with #AI.

Our portfolios in aggregate strongly outperformed in the 1H. In the 2H, we’re positioning our portfolio as cautiously optimistic, but expect some near-term headwinds as markets digest the huge 1H rally.

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The statements, opinions and analyses presented here are provided as general information. This article is the opinion of the author. Anything within this article should NOT be considered an investment recommendation or advice. See Ursa’s full disclosures here.

Original Photo by Robert Hernandez Villalta.