Q2 2023 in Review and Market Outlook (2024)

Halfway through 2023, it’s looking like the bear market for stocks may be over. But with the Federal Reserve still warning of interest rate increases to come, it’s unclear whether the coast is really clear.

That uncertainty hasn’t stopped a big rally in mega-cap stocks such as Apple AAPL, Meta Platforms META, and Nvidia NVDA, along with a group of names that investors are betting will benefit from the artificial intelligence frenzy.

It was a mixed quarter for bond investors as investors came to terms with the idea that rates aren’t coming down any time soon. But higher yields resulting from the Fed’s rate hikes also mean fixed-income investments are potentially more attractive than they’ve been in years, even if the Fed’s not yet done with its inflation fight.

As the third quarter gets underway, what’s the outlook for the stock and bond markets? What stock sectors are most attractive? What should investors do from here?

We’ve gathered insights and perspectives from analysts and specialists about market performance, individual stocks, sectors, and mutual funds.

Q2 2023 Market Performance and the Economy

Investors went into the second quarter on high alert for a recession and thinking the Fed could soon be cutting rates. At the quarter’s end, there was still no economic downturn in sight, inflation remained sticky, and the Fed was expected to keep rates higher for longer.

There were significant divergences in performance in the markets. Within stocks, the “Magnificent Seven” were responsible for the bulk of the rally, while the rest of the market was flat on balance. In the bond market, changing expectations for Fed policy sent rate-sensitive bonds slightly lower.

Here is our dive into the big market and economic trends from the second quarter of 2023, along with Morningstar’s market outlook for the second quarter and beyond:

Third Quarter 2023 Stock Market Outlook: Time to Batten Down the Hatches or Raise the Sail?

Investors should take profits on overextended stocks and reinvest in undervalued names left behind by the rally.

14 Charts On New Bull Market for Stocks, Mixed Returns for Bonds in Q2

A look back at the market’s second-quarter performance as investors wrestled with a changing outlook for the Fed.

When Will the Fed Start Cutting Interest Rates?

Our latest economic forecast for interest rates, inflation, and GDP growth.

Q2 2023 Stock Performance and Sector Outlooks

Which stocks have been the best performers? Which have taken the biggest beatings? Which sectors and stocks should long-term investors be looking to buy now?

Here we take a deeper dive into the second quarter′s stock market performance within sectors and among individual stocks, along with their future outlook from Morningstar’s stock analysts:

Best-Performing Stocks of Q2 2023

Wayfair, Palantir, and Nvidia stocks were among the biggest gainers during the second quarter.

33 Undervalued Stocks

Here’s the new list of Morningstar’s top underpriced analyst picks for third-quarter 2023.

Worst-Performing Stocks of Q2 2023

EVgo, Advance Auto Parts, and Dish Network were among the biggest decliners during the second quarter.

Communication Services Stock Outlook: As Meta and Alphabet Soar, Traditional Telecom Comes Under Renewed Pressure

While pessimism weighs on telecom valuations, wireless carriers str poised to reap the benefits of recent price increases

Technology Stock Outlook: After Taking Hits in 2022, Tech Hits Some New Highs in 2023

We see fewer buying opportunities even as the sector is now an outperformer to the broader market.

Real Estate Stock Outlook: Sector Continues to Underperform Despite High Same-Store NOI Growth

Park Hotels & Resorts and Ventas are among our top picks.

Energy Stock Outlook: Stocks Losing Steam as Commodity Doldrums Weigh on Sector

Global oil prices are down even as natural gas prices also weather a tough spell.

Financial Services Stock Outlook: The Financial Sector Is Undervalued, but There Are Clouds On the Horizon

Expectations for interest rates have risen, and charge-offs could climb above pre-pandemic levels.

Consumer Cyclical Stock Outlook: Despite Macro Headwinds and Near-Term Uncertainties, There Are Ample Opportunities to Invest

We expect strong travel demand to persist, and restaurant sales have held up remarkably well.

Healthcare Stock Outlook: Innovative Products and Defensive Nature Should Support Solid Results in Uncertain Times

We see plenty of opportunities in healthcare, especially in biopharma, healthcare providers, healthcare plans, and diagnostics and research.

Utilities Stock Outlook: Still Running In Place

The sector has remained flat due in large part to a long-overdue valuation correction.

Consumer Defensive Stock Outlook: Competitively Advantaged Firms Positioned to Withstand Promotional Resurge and Evolving Consumer Behavior

We see opportunities in consumer-packaged goods and the alcoholic beverages space.

Basic Materials Stock Outlook: Sector Underperforms, Creating Opportunities Amid Decline

Our top picks include Albemarle and Dow.

Industrials Stock Outlook: Fewer Stocks Are Undervalued, but Investment Opportunities Still Exist

Easing supply chains and a more constructive outlook on the global economy have benefited the industrial distribution and industrial products businesses.

Q2 Mutual Fund Performance

For mutual fund investors, the positive returns in the stock market during the second quarter built on the momentum gained during the first three months of the year. As was the case at the start of 2023, growth funds have been leading the pack while value has returned to lagging.

For bond funds, it was a mixed picture, as interest rates rose but funds invested in riskier fare gained.

Here’s Morningstar’s take on stock and bond fund performance during the second quarter:

Bond Funds Post Mixed Results in 2023′s Second Quarter

Lingering bond market volatility in the second quarter rewarded investors who took risk.

How the Largest U.S. Equity Funds Performed in Q2

Fidelity Contrafund, Dodge & Cox Stock, and Invesco QQQ lead; Vanguard Value, American Funds Washington Mutual lag.

Growth Stock Funds Fly High but Fall Short In 2023′s First Half

Most stock-pickers missed the market’s best-performing sectors and stocks.

How the Largest Bond Funds Performed In Q2

These funds from Vanguard, iShares, and American Funds lagged as rates rose.

The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.

Q2 2023 in Review and Market Outlook (2024)


Q2 2023 in Review and Market Outlook? ›

The positive momentum continued in the second quarter as stocks (as measured by the S&P 500 SPDR ETF – SPY) gained 8.7%. The U.S. bond market (as measured by the US Aggregate Bond ETF – AGG) lost 0.9%, and a 60% stock/40% bond portfolio returned 4.8%.

What is the market update for Q2 2023? ›

Second Quarter 2023 Highlights. » US Equity Markets: The market rally continued in the second quarter as the S&P 500 increased by +8.7% in the period.

What is the economic review for Q2 2023? ›

Disposable personal income increased $284.5 billion, or 5.9 percent, in the second quarter, an upward revision of $36.3 billion from the previous estimate. Real disposable personal income increased 3.3 percent, an upward revision of 0.8 percentage point.

What is the financial market outlook for 2023? ›

Instead, earnings may drip down slowly throughout 2023, frustrating market bears. Interest rates on long-term bonds have fallen lower than those of short-term bonds, creating an inverted yield curve that usually portends an upcoming economic slowdown.

What is the S&P 500 performance in Q2 2023? ›

Overall, Q2 2023 revenue for the S&P 500 recorded a blended growth rate of 3.9%, year-over-year, a very slight decrease from 4.0% in Q1 2023, but 1.0% above Q4 2022. Financials was the highest revenue growth sector of the quarter with 19.1%, followed by Consumer Discretionary with 11.9%.

What was the stock market return in the second quarter of 2023? ›

Q2 2023 Quarterly Commentary – July 1, 2023

Returns were not even across all equity markets. The Dow Jones Industrials offered a total return of only +4.0% in the second quarter and +4.9% for the calendar year-to-date.

What will the stock market be at the end of 2023? ›

The last trading day of 2023 closed out with a sigh, as Wall Street took a breathe after a muscular year-end rally pushed stocks close to record highs. The S&P 500 (^GSPC) ticked away from its all-time closing high of 4,796.56.

Is there a recession in the second quarter of 2023? ›

Singapore's second quarter GDP estimate for 2023 was revised down to 0.5% year-on-year (y/y) compared with the advance estimate of 0.7% y/y. Economic growth momentum in 2023 year-to-date has slowed significantly compared with annual GDP growth of 3.6% in 2022.

Is a recession coming in 2023? ›

Key Takeaways. Many economists predicted a recession in 2023 that didn't come to fruition. Consumer spending and the labor market have remained healthy despite inflation and the rate hikes implemented to quell it. Recession is less likely in the coming year as data now point to a successful soft landing.

What are economists saying about the economy in 2023? ›

Description: The January 2023 World Economic Outlook Update projects that global growth will fall to 2.9 percent in 2023 but rise to 3.1 percent in 2024. The 2023 forecast is 0.2 percentage point higher than predicted in the October 2022 World Economic Outlook but below the historical average of 3.8 percent.

What happened in the year in review market in 2023? ›

The S&P 500 Index rose 24.23% in 2023, setting a new all-time high near year end. Stocks were supported by resilient economic growth, encouraging earnings and expectations that both inflation and interest rates had likely peaked. The total return of the S&P 500 Index (including dividends) was up 26.29% over the period.

What is the YTD stock market return in 2023? ›

Year-to-date, the index was up 6.84% (7.11%), as the 2023 return was up 24.23% (26.29%), making up for 2022's 19.44% decline; the one-year return was 28.36% (30.45%).

What is the outlook for the stock market in 2024? ›

Overall, Yardeni Research forecasts S&P 500 operating earnings at $250 in 2024, up 12% vs 2023. He puts them at $270 in 2025 (up 8%) and $300 in 2026 (up 11.1%). These figures compare with analysts' consensus forecasts of $244.70 in 2024, $279.70 in 2025 and $314.80 in 2026.

What is the economic outlook for q2 2023? ›

Households are spending down surplus savings accumulated early in the pandemic, and consumption will likely dip below the trend as this surplus is likely to run out late in the year. Slowing consumer spending is likely to contribute to slowing economic growth late in 2023 or in 2024.

What will the 2023 year end of the S&P 500? ›

The benchmark S&P 500 index inched lower Friday, the last trading day of 2023, but ended the year with a 24.2% gain. The Dow Jones Industrial Average rose more than 13% this year, and the Nasdaq soared 43%, driven by gains in big technology companies, including Nvidia, Amazon and Microsoft.

Should you invest in S&P 500 in 2023? ›

Defying expectations, the S&P 500 gained 26.3% in 2023, reversing its 2022 decline. In a year full of tribulations, key factors such as tech stocks running up and US inflation cooling contributed to US equities resilience. Despite forecasts, the reality is no one knows for sure how markets will perform in 2024.

What is the bond market in Q2 2023? ›

Global bonds. The second quarter of 2023 saw a significant drop in market volatility. Government bond yields were on the rise again, although there was some divergence, with the UK and Australia underperforming due to higher-than-expected inflation and a greater resolve by central banks to combat inflation.

What is the stock market outlook for the first quarter of 2023? ›

First Quarter 2023 Highlights. » US Equity Markets: The S&P 500 increased by +7.5% in the first quarter, for the best start to a calendar year since 2019 and the second best overall in the last ten years.

What is the market performance review for 2023? ›

The S&P 500 Index rose 24.23% in 2023, setting a new all-time high near year end. Stocks were supported by resilient economic growth, encouraging earnings and expectations that both inflation and interest rates had likely peaked. The total return of the S&P 500 Index (including dividends) was up 26.29% over the period.

Will there be a market correction in 2023? ›

When was the last stock market correction? You may be surprised to know that we had four stock market corrections in 2022 and one stock market correction in 2023 as illustrated in the chart below. While we did not experience a stock market correction in 2021, we experienced five stock market corrections in 2020 alone!

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