Schwab Intelligent Portfolios & Q2 2023 Market Performance¹

July 21, 2023
The second quarter of 2023 brought a continued rally in the global equity markets as economic growth remained solid, inflation eased further, and the Federal Reserve paused its interest rate hikes.
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How did financial markets do in Q2 2023?

The second quarter of 2023 brought a continued rally in the global equity markets as economic growth remained solid, inflation eased further, and the Federal Reserve paused its interest rate hikes. The U.S. stock market, as measured by the S&P 500® Index, delivered a strong gain for the third consecutive quarter as large consumer technology stocks continued to push the market higher. Small cap stocks also delivered a solid gain, overcoming pressures on regional banks early in the quarter. International developed market stocks were modestly positive while emerging markets were relatively flat.

Bonds were mixed as longer-term interest rates rose modestly for the quarter. Core bonds such as Treasuries were negative, while others such as high-yield bonds were positive, illustrating the benefits of the broad diversification within Schwab Intelligent Portfolios®.

On the economic front, debt-ceiling negotiations raised concerns mid-quarter, but Congress reached an agreement that averted a potential government default and suspended the debt limit until January 2025. Corporate earnings growth weakened, but analyst expectations have become more optimistic for the second half of the year, helping to ease recession fears. Inflation continued to moderate, leading the Fed to hold rates steady at its June meeting. And unemployment ticked higher but remains near historical lows.

Figure 1: Market performance (ranked by Q2 2023 total return)
Asset class Q2 2023
[Index Total Returns (%)]
1 Year
[Index Total Returns (%)]
3 Year Annualized
[Index Total Returns (%)]
U.S. large cap stocks 8.74 19.59 14.61
U.S. small cap stocks 5.21 12.31 10.83
International large cap stocks 2.95 18.77 8.94
U.S. real estate investment trusts (REITs) 2.65 -0.06 8.92
High-yield bonds 1.60 9.08 2.47
Emerging markets stocks 0.90 1.75 2.32
International small cap stocks 0.58 10.18 5.70
Municipal bonds -0.10 3.19 -0.58
Investment-grade corporate bonds -0.31 1.39 -3.38
Securitized bonds -0.63 -1.50 -3.64
Emerging markets bonds -1.37 2.29 -0.04
Treasury Inflation Protected Securities (TIPS) -1.42 -1.40 -0.12
U.S. Treasuries -1.45 -1.53 -3.63
Gold & other precious metals -3.41 5.24 2.65

How did Schwab Intelligent Portfolios do?

For Schwab Intelligent Portfolios, Q2 brought a third-consecutive quarter of positive returns for most portfolios. Growth portfolios were the top performers as stocks delivered strong gains for the quarter. Moderate portfolios saw moderate gains due to their balanced mix of stocks and bonds. And Conservative portfolios benefited from their diversification despite the modest pressure on bonds during the quarter. Income portfolios were relatively flat due to the continued pressure on high-dividend stocks so far this year.

Looking ahead to Q3 2023

Looking ahead to Q3, uncertainty remains elevated as the Fed tries to engineer a soft landing by bringing down inflation while avoiding tipping the economy into a recession. While the direction of the economy and markets in coming months remains to be seen, it's important to stay focused on what you can control. As history has shown, sticking to time-tested principles, such as investing in a diversified portfolio, rebalancing as markets fluctuate and keeping costs low, are among the keys to long-term investment success.

David Koenig CFA®, FRM®, is Vice President and Chief Investment Strategist for Schwab Intelligent Portfolios
 

1 This quarterly commentary is designed to provide you with insight into the market environment during the quarter. How your portfolio performed is dependent upon your asset allocation across the risk spectrum from conservative to aggressive, as well as criteria such as when you opened your account, the timing of any deposits/withdrawals, timing of portfolio rebalances, whether you are enrolled in tax-loss harvesting and other criteria.