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Second Quarter Investment Report – Equity Market Performance Led by Technology Shares

Equity markets continued to rally throughout the second quarter led by the technology sector, as enthusiasm surrounding artificial intelligence gained momentum. A stronger than expected economy, moderating inflation, and relief related to both the regional banking sector and the debt ceiling also had a positive impact. The well-advertised and much anticipated recession has been delayed – for now…

Despite the positive performance year to date, three quarters of the S&P 500 gains this year can be attributed to just seven mega capitalization technology companies. This is generally not a healthy sign for the market as a whole and keeps us cautious when coupled with other factors such as deteriorating economic data, yield curve inversion, and a Federal Reserve determined to drain money/liquidity from the system.

The second half of 2023 is likely to be trickier for investors, as the lagged effect of tighter monetary policy catches up to better than expected economic activity and higher than average equity market valuations. Our economic future has seldom been as cloudy as it is today, which is to say both economic and financial indicators are all over the place.

Nevertheless, investors should not put too much weight into doom and gloom pronouncements and instead are advised to remain cautious on the margin. This means it is prudent to remain well diversified in the event of deteriorating financial market conditions. For risk averse investors looking to put new money to work, short term U.S. Treasury bills offer historically attractive yields (greater than 5% on an annual basis) with little price variability.

How The Markets Did Last Quarter?

Global equities had a positive quarter as large-cap U.S. growth stocks far out-paced other sectors and regions. For the quarter, the S&P 500 was up +8.7%, Russell 2000 Small Cap Index was up +5.3%, Developed International (EAFE) was up +3.3%, and Emerging Markets were up +1.0%.

Bond rates rose dramatically last year, but that trend seems to have moderated with intermediate and long term U.S. Treasury bond yields a little higher over the quarter, but down modestly in yield, year to date. More importantly, the yield curve as measured by the difference between the US 10 year Treasury Note and the US 2 year Treasury Note closed the quarter deeply inverted at -106 basis points or -1.06% yield differential. In a normal environment, long term interest rates are higher than short term interest rates. If the yield curve continues to stay inverted this could reignite concerns over the health of the overall banking industry, which in a leveraged based economic system is a net negative for economic growth.

With that said, it is near impossible for most investors to follow a market timing strategy in which an investor is either 100% in or out of stocks. Better to get one’s asset allocation right based on risk/return objectives and then ride out both the ups and downs with a level of comfort. As the saying goes, it is not timing the market, but time in the market which produces the best long term results.


Enclosed are your investment reports and advisory invoice for the last quarter. Please feel free to contact us if you would like to discuss our investment strategy for the upcoming quarter. Thank you for your continued trust and confidence.


Justin Kobe, CFA

Founder, Portfolio Manager & Adviser

Pacificus Capital Management

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Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Cambridge and Pacificus Capital Management are not affiliated. Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. These are the opinions of Justin Kobe and not necessarily those of Cambridge Investment Research, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing in the bond market is subject to risks, including market, interest rate, issuer credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies is impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counter-party capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Diversification and asset allocation strategies do not assure profit or protect against loss.

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