We’re half way through 2023—and what a half it has been. Now is a smart time to take a look at your portfolio to position your investments for the rest of the year.
The
S&P 500
has gained about 16% so far this year, shrugging off lingering worries about recession, inflation, and rising interest rates, while bonds have stabilized. U.S. equities are the top-performing asset class by returns. Japanese and European stocks also had strong gains.
Other asset classes didn’t fare as well, including commodities, which stumbled after outperforming in 2021 and 2022.
Past performance, however, can be one useful way to inform future investment decisions. Barron’s checked in with investment strategists for their best advice.
Adam Turnquist, chief technical strategist for LPL Financial, said that if history is any guide, the stock market’s strong first-half momentum could spill into the second half. Since 1950, the S&P 500 has followed up a positive first half with an average second half gain of 6.0%, he said. When first half gains were 10% or higher—which is the case this year—the index posted average gains of 7.7% in the second half.
Saira Malik, CIO at Nuveen, also sees more upside in U.S. stocks, especially those benefiting from artificial intelligence. Her year-end target for the S&P 500 is 4700, well above its current level of around 4450.
“There are multiple tailwinds for U.S. large-cap growth stocks to continue outperforming,” she said, including the proliferation of AI, slowing economic growth, and a pause in rate hikes. “We think U.S. large-cap equities remain a relative safe haven and believe large/mega cap technology companies—the main market driver this year—look relatively well positioned for disinflation and slowing growth,” she wrote in Nuveen’s midyear outlook.
Investors should also consider small-cap stocks. Matt Freund, co-CIO at Calamos Investments, said he expects the stock market’s gains to broaden beyond the tech megacap stocks that have powered the remarkable rally for stocks. “If that [happens], I think small caps are going to do very well,” he said. The
S&P 600,
an index of small-caps, is up just over 5% after being down through much of the spring.
International stocks are also poised to outperform in the second half. “Japan has done very well, as has Europe, and I think that will continue,” said Jurrien Timmer, director of global macros at Fidelity Investments.
Developed markets excluding North America have underperformed for the past decade, he added. “There’s a mean reversion opportunity beyond just the next six or 12 months, but really for the next five-plus years.”
Japan’s
Nikkei 225 index
is up nearly 30% this year, outpacing the gains for the S&P 500. The question is whether the rally will continue. “We think there are some interesting opportunities coming out of Japan on the equity side,” said Niall O’Sullivan, CIO of multi-asset strategies for EMEA at Neuberger Berman, partly thanks to the rise in demand for data centers.
While emerging market stocks lagged behind international and U.S. stocks this year, Malik thinks they could catch up later this year, especially if China’s stimulus kicks in. “Valuations look cheap for emerging markets,” she said. “China is adding stimulus to the economy and economic growth in China could start to catch up, so emerging markets could have a catch-up trade.”
One asset class investors might want to avoid: commodities. They have slumped this year—the S&P GSCI commodities index is down about 9% this year—and face headwinds amid slowing global growth. Fidelity’s Timmer is bullish on commodities “over the very long term,” but says now isn’t the time to add the asset class. Commodity cycles tend to last a few years, he said, and “maybe it’s too early to re-enter that market.”
Write to Lauren Foster at [email protected]
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