Wall Street Ends the First Half of 2023 on a High Note

The Nasdaq Composite concluded the first half of 2023 on a high note, recording a notable 1.45% rally on Friday (+2.19% for the week) and marking a substantial 31.73% surge year-to-date. This impressive performance represents the most significant first-half surge for the technology-focused index since 1983 when it rose by 37%. The Nasdaq outperformed the other indices in terms of percentage gains. That said, the S&P 500 also delivered attractive returns for the first six months of the year, achieving a commendable increase of 15.91%. It is important to note that these gains were largely concentrated in megacaps. In fact, the dominance of the top five stocks, namely Apple, Microsoft, Alphabet-Google, Amazon, and Nvidia, significantly influenced the benchmark index's performance. Despite comprising just 22% of the index's allocation, these five stocks accounted for over 80% of the overall index return. In contrast, the Dow Jones Industrial Average lagged behind, exhibiting a modest advance (+2.02% for the week and +3.80% for the year).

In Europe, the MSCI EMU followed suit with a weekly gain of 2.81% (+13.06% year-to-date) but the FSTE advanced modestly on the week (+0.93%, +1.07% for the year).

In Asia, Japan's Nikkei gained 1.24% week-over-week (+27.19% YTD). The battered yen fell again as Bank of Japan Governor Kazuo Ueda pointed to his country’s low underlying inflation as sufficient reason for monetary policy to stay accommodative even as the rest of the world tightens aggressively. The Shanghai Composite treaded water (+0.13% for the week, +3.65% YTD) even as Premier Li Qiang said that the country’s economy has grown at a faster pace in the second quarter. Li's assurances come a day after S&P Global cut its forecast for China's economic growth to 5.2% in 2023, down from an earlier estimate of 5.5%.

All major S&P sectors finish June in positive territory    

The remarkable surge witnessed in the benchmark index during the first half of the year can be attributed to a confluence of factors, with the foremost among them being the phenomenal progress made by technology-led growth stocks. The prevailing optimism was further bolstered by indications that the Federal Reserve's aggressive stance on interest rate hikes was indeed achieving the desired deceleration effect on the economy, prompting market participants to escalate their expectations of the central bank curtailing its monetary policy tightening before year-end.

However, the primary impetus behind the formidable gains observed in the initial six months primarily stems from the exceptional performance exhibited by growth-oriented industries, driven by the fervour surrounding artificial intelligence and a notable upswing in earnings trajectory. Notably, outpacing the S&P 500 are solely three sectors, all of which fall under the purview of growth sectors.

Information Technology ETFs have jumped 42.06% year-to-date, boosted by chipmakers (Nvidia – NVDA) and some behemoths such as Apple (APPL) and Microsoft (MSFT). Communications Services, which include Alphabet (GOOG) and Meta Platforms (META), gained 35.58%, and Consumer Discretionary, which holds Amazon (AMZN) and Tesla (TSLA), was up 32.33%. Combined, these three sectors account for about 47% of the overall market weighting and 112% of the YTD performance of the S&P 500.

All the other sectors significantly underperformed the benchmark index over the last six months. The S&P 500 gains have thus failed to help the financials, utilities, health care, and energy sectors recoup their losses for the first half.

The financials sector is down 1.51% this year. The healthcare sector has lost 2.33%. The energy and utilities sectors have experienced the largest drops in H1 2023, down 7.26% and 7.16% respectively while the consumer staples sector is virtually flat.

Check out the latest flows intro Information Technology ETFs through the weekly updated league tables available here.