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US equities were the strongest asset class over the first half of the year.
NYSE
We’re halfway through 2023 – and what a half it was. Now is a good time to take a look at your portfolio to help position your investments for the rest of the year.
The
S&P 500
is up around 16% so far this year, shrugging off lingering concerns about recession, inflation and rising interest rates, while bonds have stabilised. US equities are the best performing asset class based on returns. Japanese and European stocks also posted strong gains.
Other asset classes did not fare as well, including commodities, which faltered after outperforming in 2021 and 2022.
However, past performance can be a useful basis for future investment decisions. Barrons We turned to investment strategists for the best advice.
Adam Turnquist, chief technical strategist at LPL Financial, said that if history is used as a guide, the stock market’s strong momentum in the first half of the year could spill over into the second half. Since 1950, the S&P 500 has continued a positive first half, with an average gain of 6.0% in the second half, he said. While gains in the first half were 10% or more — which is the case this year — the index averaged gains of 7.7% in the second half.
Saira Malik, CIO at Nuveen, also sees further upside in US stocks, particularly those benefiting from artificial intelligence. Their year-end target for the S&P 500 is 4700, well above the current level of around 4450.
“There are several tailwinds for US large-cap growth stocks to continue to outperform,” she said, including the spread of AI, slowing economic growth and a pause in rate hikes. “We believe US large-cap stocks remain a relatively safe haven and believe that large/mega-cap tech companies – the key market driver this year – are relatively well positioned for disinflation and slowing growth ‘ she wrote in Nuveen’s mid-year outlook.
Investors should also consider small-cap stocks. Matt Freund, co-CIO at Calamos Investments, said he expects the stock market’s gains to extend beyond the tech megacap stocks that have fueled the remarkable stock rally. “If that [happens]”I think small caps are going to do very well,” he said. The
S&P 600
,
an index for small-caps, is up just over 5% after declining for most of the spring.
International equities should also outperform in the second half of the year. “Japan has done very well, as has Europe, and I think it will continue to do so,” said Jurrien Timmer, director of global macros at Fidelity Investments.
He added that developed markets, with the exception of North America, have underperformed over the past decade. “There is a possibility of an average reversal beyond the next six or 12 months, but actually for the next five years.”
Japan’s
Nikkei 225 index
is up almost 30% this year, outperforming the gains of the S&P 500. The question is whether the rally will last. “We think there are some interesting opportunities emerging from Japan on the equity side,” said Niall O’Sullivan, CIO of multi-asset strategies for EMEA at Neuberger Berman, in part due to rising data center demand.
While emerging market stocks have underperformed international and US stocks this year, Malik believes they could catch up later this year, particularly if China’s stimulus measures take hold. “Valuations for emerging markets look cheap,” she said. “China is stimulating the economy and economic growth in China may start to catch up, so emerging markets could have a catch-up trade.”
One asset class investors might want to avoid is commodities. They’ve slumped this year — the S&P GSCI commodities index is down about 9% this year — and face headwinds as global growth slows. loyalty Timmer is bullish on commodities “for the very long term,” but says now is not the time to add the asset class. Commodity cycles typically last a few years, he said, and “maybe it’s too early to get back into this market.”
Write to Lauren Foster at [email protected]
