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  • Writer's pictureHolzberg Wealth Management

Taking Stock (and Bonds) At Mid-Year. Breaking Down the Current Economic Landscape.

HWM Market Recap - June 2023

Holzberg Wealth Management Newsletter
​Executive Market Summary

In the world of corporate securities, stocks are joined at the hip by bonds, i.e., equity and debt. Stocks represent ownership or equity in the issuing corporation, and bonds represent a loan or debt. Both stocks and bonds are issued by corporations. The only securities issued by governments are bonds, including federal (treasuries & agencies) and state and local (municipal). You cannot buy stock in a government.

Think of it this way, if you have money that you want to invest, there are only two ways. One is to own something (equity) that you expect to appreciate in price, and perhaps earn a dividend, with the intent to one day sell it for a profit. The other way is to lend money (debt) for interest with a set maturity date to get your money back.

Depending on the issuer, some equities go by other names, such as units, trusts, or partnerships. Nonetheless, they all represent ownership (equity). Debt also has a variety of names, such as bonds, notes, bills, general obligations, certificates of deposit, commercial paper, and mortgages. The different debt names indicate the type of issuer, length of the loan, source of payment, and any collateral.

You can invest in the securities of individual issuers or in a diversified pool called funds. The types of funds include mutual funds, closed-end funds, exchange-traded funds (ETF), unit trusts, and managed or separate accounts. Their value goes up and down with the combined changes in the prices of the stocks and/or bonds in the fund.

Another category of securities is derivatives. These are characterized not by direct ownership (equity) or a direct loan (debt), but rather their nature is 'derived' from an underlying asset or pool of assets. Examples include: stock options whose value goes up and down with the underlying stock, mortgage securities whose value goes up and down with the underlying pool of mortgages, or one based on commodities such as gold, uranium, oil, the dollar, bitcoin, or even soft commodities like corn, wheat, and soybeans.

All of this is to point out that while there are many different types of securities, they all either represent ownership (equity) or a loan (debt). When we invest, we seek a rate of return commensurate with a suitable level of risk. With equities, the goal is price appreciation combined with the cash flow of dividends if the issuing company pays dividends. Dividends are a share of corporate profits, and many companies do not pay dividends. They instead choose to use earnings to grow the business. With debt securities, the goal is to receive timely payment of interest on the loan and to receive the repayment of principal when due. Issuers must pay principal and interest when due or will be subject to legal enforcement and resolution.

This review of the nature of stocks and bonds highlights one major change in the investment landscape over the past year -- the dramatic increase in interest rates. For many years, interest rates have been at historically very low levels. So low, in fact, that many, if not most, interest-bearing securities offered unattractive rates of return. Now, with interest rates having moved considerably higher, their rate of return is attractive, and bonds are returning to their traditional role of providing income, diversification, and a balance to our investment portfolios. The point being that when interest rates were near zero, stocks were the only alternative for a higher rate of potential return.

In a few weeks, the year will be half over. Looking back, in our January newsletter, we stated with regard to the debt ceiling:

While I believe Congress will reach a last-minute agreement, it is also likely that the uncertainty will contribute to substantial market volatility.

True to form, the agreement was reached days before the Treasury estimated it would run out of money. Along the way, we saw market ups and downs, plenty of political finger-pointing, three of the largest bank failures in U.S. history, and problems with office buildings and certain hotels.

In February's newsletter, we stated that:

The good news is that we are beginning to see some longer-term improvements that should be realized later this year or next year – more about this in coming newsletters.

Those longer-term improvements include continued growth in jobs, a broadening economy, interest rate hikes slowing inflation, and providing more income to savers and retirees.

All of which is to say that the economy and the markets are working through various domestic and international problems.

Going forward, as before, there are numerous uncertainties in the economy, politics, and the investment markets. For example, how will the new level of interest rates affect various industries, the government, businesses, and families? What if jobs start decreasing and unemployment claims rise? Will a slowing economy eventually tip into a recession? How will the problems in the banking industry affect lending?

There are more reasons to be positive about the economy now than a year ago, and higher interest rates have enabled us to better balance portfolios between stocks (equity) and bonds (debt). Perhaps economic adjustments will occur industry by industry rather than the entire economy all at once.

Now that the debt ceiling has been lifted, the U.S. Treasury will borrow a great deal of money. What are the implications? While we remain cautious, at least for now, the economy and markets are slowly improving.

Markets Overview

​Monthly Changes in Indices

  • S&P 500: +1.28%

  • DJIA: -2.60%

  • Nasdaq Composite: +7.27%

​Year-to-Date Changes in Indices

  • S&P 500: +9.94%

  • DJIA: +0.65%

  • Nasdaq Composite: +25.17%

​Monthly Performance By Sector

  1. Technology +9.94%

  2. Communication Services +5.29%

  3. Consumer Discretionary +4.79%

  4. Industrials -2.46%

  5. Financials -2.96%

  6. Real Estate -3.58%

  7. Health Care -4.20%

  8. Materials -5.59%

  9. Consumer Staples -6.35%

  10. Utilities -6.72%

  11. Energy -7.88%

​Year-to-Date Sector Performance

  1. Technology +33.62%

  2. Communication Services +31.82%

  3. Consumer Discretionary +19.13%

  4. Industrials +0.24%

  5. Real Estate -1.70%

  6. Materials -1.75%

  7. Consumer Staples -2.18%

  8. Health Care -4.98%

  9. Financials -5.71%

  10. Utilities -7.89%

  11. Energy -10.49%

Monthly Top 5 Performers

Technology +9.94%

The technology sector jumped to the best-performing sector in May. Its leaders included: NVIDIA Corp (+37.56%), Advanced Micro Devices Inc (+33.20%), Broadcom Inc (+23.83%), Synopsys Inc (+22.32%), and ServiceNow Inc (+20.55%).

Communication Services +5.29%

Communication Services fell to the second-best performing sector in May. Its leaders included: Netflix Inc (+24.38%), Live Nation Entertainment Inc (+18.61%), Alphabet Inc Class C (+15.47%), Alphabet Inc Class A (+15.41%), and Meta Platforms Inc Class A (+12.10%).

Consumer Discretionary +4.79%

Consumer Discretionary climbed six spots from April to the third-best performing sector in May. Its leaders included: Tesla Inc (+28.23%), Carnival Corp (+24.87%), Royal Caribbean Group (+24.26%), Inc (+20.30%), and Darden Restaurants Inc (+6.92%).

Industrials -2.46%

Industrials rose from the worst-performing sector in April. Its leaders included: Verisk Analytics Inc (+14.23%), Copart Inc (+11.98%), Generac Holdings Inc (+10.77%), United Airlines Holdings Inc (+6.76%), and Eaton Corp PLC (+6.59%).

Financials -2.96%

Financials was the fifth-best-performing sector in May. Its leaders included: Signature Bank (+54.34%), Capital One Financial Corp (+14.67%), Synchrony Financial (+9.28%), Discover Financial Services (+6.45%), and Zions Bancorp NA (+4.70%)

Political Events Influencing the Economy
  • President Biden and House Speaker Kevin McCarthy agreed to suspend the debt limit until 2025. The bill passed both chambers of Congress and has been signed into law by the president.

  • The Consumer Price Index (CPI) rose 4.9% over the last twelve months, down from March’s 5% increase and the 10th consecutive month that inflation has cooled. This marks the lowest annual pace of inflation seen since April 2021. At a municipal level, Miami tops the list of the U.S. cities with the highest annual inflation rate, with a whopping 9% increase in CPI.

  • The Federal Reserve raised interest rates by another 0.25%, marking a 16-year high since before the Great Recession. This is the 10th consecutive interest rate increase in over a year.

  • Despite economic weaknesses, the U.S. exceeded analyst estimates by adding 253,000 jobs in April. The overall unemployment rate decreased to 3.4%, around the same level as in January, and was the lowest since 1969. Also, wages were up 4.4% from a year ago, again beating expectations.

  • The U.S. Gross Domestic Product (GDP) for the first quarter of 2023 grew a measly 1.1% continuing its downward trend since mid-2022.

  • According to the University of Michigan’s Index of Consumer Sentiment, consumers showed ongoing concerns over the state of the economy. The sentiment index, which fell 7% in May, is still up from its all-time low from June 2022.

  • The New York Fed released its first quarter report on household debt, which found a record-high debt level of $17 trillion, persistent credit card debt, and rising delinquency rates.

  • According to the S&P CoreLogic Case-Shiller National Home Price Index, which measures prices across the U.S., home prices rose 0.4% in March month-over-month marking the second straight monthly increase. The index rose 0.7% year-over-year, the smallest annual increase since May 2012.

  • Existing-home sales slid to 3.4% in April and 23.2% from a year ago. The median existing-home sales price fell by 1.7% from last year to $388,800.

  • State Farm announced that it has stopped issuing new homeowners insurance policies in California, citing rising construction costs and rapidly worsening wildfires as the reasons why. Homeowners with existing policies will retain their coverage.

  • On May 5th, the World Health Organization declared an end to the global COVID-19 health emergency, nearly two and a half years after instituting it.

  • New York City has enough empty office space to fill more than 26 Empire State Buildings (about 74.6 million square feet). Researchers Edward Glaeser and Carlo Ratti made the comparison to emphasize how commercial real estate in large American cities is struggling to adapt to the new work-from-home era.

  • After failing to reach a deal with the Alliance of Motion Picture and Television Producers (AMPTP), the Writers Guild of America (WGA) went on strike. The WGA argues that Hollywood’s push to streaming platforms has worsened their working conditions and made earning a fair living as a writer more challenging. The last writers’ strike in 2007 lasted 100 days, prompting studios to turn to more unscripted (reality) television programs.

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About the Author

Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.

** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions.


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