Mid-Year Market and Economic Outlook

CAPTA WEALTH on 2023-07-14

As we bid farewell to June and conclude the second quarter of 2023, it’s essential to reflect on the plethora of news and data that has shaped the past three months. From inflation and interest rates to GDP figures, US debt ceiling negotiations, and the rand at (repeated) record lows against the US dollar, the market has experienced a whirlwind of developments - and yet, the S&P 500 is up +14.5% so far this year (in price terms). That marks the fourth-best first half in the last 25 years (with 2013, 2019, and 2021 the other occurrences). 

In this review, we will highlight the key events of the quarter and unpack market performance over the year thus far.

Quarterly Overview

The quarter began on a positive note as risks facing the global banking sector began to dissipate. Subsequently, the political debate around raising the US debt ceiling (to prevent the US from defaulting on its debt) drove uncertainty, but the deal eventually passed to the relief of market participants. 

Both shares and bonds were under pressure in the second quarter as investors moved to price in further interest rate rises and an increased risk of recession. Inflation continued to move higher in many major economies during the quarter. Among equities, the MSCI Value index outperformed its growth counterpart but both saw sharp falls. Chinese shares proved a bright spot as prolonged lockdowns were lifted in some major cities.

Locally, load-shedding continued to diminish the economic outlook, although growth indicators surprised to the upside later in the quarter. Geopolitical tensions weighed on the rand and a combination of this along with stubborn inflation saw the SARB rates increase by an additional 50bps in May.

The second quarter of 2023 also saw an acceleration of the tech sector outperformance in the first quarter, as "Al" enthusiasm drove several mega-cap tech stocks higher. Those strong gains resulted in large rallies in the tech-focused Nasdaq and, to a lesser extent, the S&P 500 as the tech sector is the largest weighted sector in that index. Also, the less-tech-focused Russell 2000 and Dow Industrials logged more modest, but still solidly positive, quarterly returns.

Commodities saw modest losses in the second quarter as most declined over the past three months. Oil prices witnessed a moderate drop despite a surprise production cut from Saudi Arabia and an increase in geopolitical tensions in Russia, as concerns about future economic growth and over supply weighed on oil. Gold, meanwhile, posted a modestly negative return as inflation declined while the dollar failed to meaningfully drop.

While clearly the past quarter has brought positive developments in the economy and the markets, leading the financial media to proclaim a "new bull market" has started, it's important to remember that potentially significant risks remain to the economy and markets.

A Tale of Two Halves

2022 was the eighth-worst first half for the S&P 500 since 1951. With a decline of 20.6%, the index tumbled into a bear market in the first six months of the year. 

2023, on the other hand, has seen the pendulum swing the opposite way. The S&P 500 has produced a 15.9% gain through the first six months of the year, good for the tenth-best first halves since 1951. 

Quarterly Performance Review Per Region


While at the start of the quarter, recession fears were on the rise after Q1 estimates showed that the US economy had grown by a mere +1.1% quarter on quarter (q/q), market expectations shifted as this figure was revised up to 2%.

Despite headline inflation declining, core inflation remained sticky, barely changing in three months to print at 4.6% year on year (y/y) in May. On the monetary policy front, after a 25bps hike in May, the Fed kept the Federal Funds rate at 5%-5.25% in June, suggesting a pause in the hiking cycle. However, Chair Powell later signalled that two further hikes could be needed this year. 

Within the equity market, the big focus on Artificial Intelligence and its productivityboosting potential drove gains in tech sector stocks, helping the NASDAQ Index to end the quarter 13.1% higher. The broader improvement in risk appetite helped the S&P 500 Index to post an +8.7% total return for the quarter.


The second quarter saw further steep declines for Eurozone shares as the war in Ukraine continued and concerns mounted over potential gas shortages. Higher inflation is also denting consumer confidence, with the European Central Bank (ECB) poised to raise interest rates in July and September.

Concerns over the higher cost of living and possibility of recession saw the European Commission’s consumer confidence reading fall to -23.6 in June, the lowest level since the early stages of the pandemic in April 2020.

Top performing sectors in this region included energy and communication services while information technology and real estate experienced sharp falls.


Over Quarter two, S&P Global Ratings changed the UK's sovereign credit rating outlook from 'negative' to 'stable' and affirmed its debt grade at 'AA'. The ratings agency cited stronger economic performance and expectations of more contained budget deficits over the next two years as the primary drivers behind the decision.

A key development over the quarter was a stubbornly high annual inflation print, at a higher-than-expected 8.7% y/y in May. This led to a bigger-than-expected rate hike from the BoE in June (50bps) and pointed to rates having to remain higher for longer, as the UK faces one of the toughest battles in taming inflation among developed markets.

UK equities fell over the quarter. Economically sensitive areas of the market performed poorly towards the end of the period amid rising recessionary risks. Large cap companies held up relatively well as traditionally defensive areas of the market outperformed, including the telecoms, healthcare and consumer staples sectors.

Emerging Markets:

Emerging market equities experienced a fall in Q2, with US dollar strength a key headwind. This was despite outperforming developed market peers by a wide margin.

The Latin American markets of Colombia, Peru and Brazil were among the weakest markets in the MSCI Emerging Markets Index. A combination of rising concern over a global recession, domestic policy uncertainty, and later in the quarter weaker industrial metals prices, contributed to declines in equities and currencies.


At the start of Q2, China’s re-opening from COVID continued to benefit the economy, with headline GDP printing better than expected for Q1, growing at an annualised 2.2%. 

By the end of Q2, China was the only index market to end the quarter in positive territory. Investor sentiment towards the country was also boosted after government data showed that factory activity in China grew in June.

Local Markets:

While load shedding weighed on the economic outlook and prompted warnings from the SARB around its negative impact on growth, the economy managed to grow 0.4% in Q1 2023.

The JSE closed out the first half of 2023 firmly in the green, triumphing over a rough six months characterised by weaker commodity prices, record load shedding, and a rand rout largely induced by South Africa’s relations with Russia. The benchmark All Share Index (Alsi) closed the first half just over 4% stronger.

During the quarter, the rand reached a new record low against the US dollar on the back of the government’s decision to grant diplomatic immunity to participants at the BRICS meeting later this year. Towards the end of the period, news reports suggested President Putin would no longer attend the BRICS summit, easing some of the geopolitical pressure facing the country and bought some needed relief to the local currency which we saw break through the R18/$ level in morning trade today (Friday) for the first time in just over three months.

While the JSE returned a result that “has not been bad at all”, according to Wayne McCurrie of FNB, it has not been able to keep up with its global peers.

Here are some of the best and worst performing JSE stocks for 2023 thus far.

Sources: StrategIQ, Ninetyone, Moneyweb, Schroders, FinSyn

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