Investment Commentary: Q2 2023

The second quarter of 2023 saw continued economic expansion bolstered by disinflationary trends and stronger-than-expected corporate earnings. The quarter began with the markets still freshly wounded from the failures of SVB and Signature Bank, but as both the Fed and commercial banks stepped in, “contagion risks” were quickly mitigated. After a Federal Reserve rate-hike pause and a quick resolution to the debt ceiling, the markets found plenty of cheer, and the equity markets quickly pivoted to a risk-on stance, with the S&P 500 returning 10.32% and the NASDAQ surging 17.33% during the quarter.

Despite these strong headline returns, the underlying market gains were very narrowly drawn where there was both thin leadership and historically thin breadth of the equity markets that topped the list. An overwhelming proportion of the markets’ gains were attributed to mega-cap, technology-led companies such as AMZN, AAPL, GOOGL, META and NVDA. Other sectors have materially underperformed the torrid performance of the market leaders, particularly traditionally defensive sectors such as utilities, energy and consumer staples.

Concerns that the Federal Reserve will raise rates too far to stamp out inflation persist. Foreboding cracks in the economy are emerging, from falling manufacturer’s ISMs to softness in real estate markets. The vaunted unemployment numbers have some underlying structural weakness; the average number of weekly hours worked has fallen for nearly two straight years, meaning that less output is being spread across more workers. Real wages (wages adjusted for inflation) continue to fall, potentially indicating further labor market softness.

The Community Foundation Corporation’s year-to-date net return through the end of the second quarter was 8.4% versus the market benchmark of 7.9%. For the one-year ended June 30th, 2023, the Corporation posted a net return of 10.0% versus 8.9% for the market benchmark, with performance bolstered by the strength of our hedge fund portfolio.

We are strategically positioned across a variety of asset classes and strategies, and believe that our diversified, long-term portfolio is well positioned for a variety of scenarios as our managers continue to seek alpha and invest globally in compelling opportunities.

Questions? Contact A.F. Drew Alden
SVP and Chief Investment Officer, The Community Foundation for Greater New Haven;
President and CEO, TCF Mission Investments Company

*The Corporation is a Connecticut registered investment adviser and part of The Community Foundation for Greater New Haven.

Learn more about The Community Foundation's investments.