Mercer’s Second Quarter 2023 Market Review   

as of June 30, 2023

Global markets moved higher during the quarter as slowing inflation, the pause in the Federal Reserve’s hiking cycle, an agreement on the debt ceiling and enthusiasm over artificial intelligence supported investor optimism.  Volatility remained relatively subdued throughout the quarter, despite issues in the banking sector and difficult negotiations over the debt ceiling. Economic growth, particularly in the US, has been more resilient than most economists expected.

In the US, GDP grew at an annual rate of 2.0% during the first quarter, with economic data and corporate earnings surprising to the upside during the second quarter. Combined with slowing inflation and excitement around artificial intelligence, this led to a strong run for equities.  However, a large portion of those gains occurred in a small number of mega-cap tech stocks, increasing index concentration and presenting risks if sentiment toward those companies were to reverse. Consumer strength has continued to support the economy, as a strong jobs market and residual COVID-era savings and stimulus continue to drive spending.  However, the accumulating impacts of higher prices and interest rates are depleting excess savings. While the jobs market remains strong, the pace of jobs gains is slowing.

Inflationary pressures continue to weaken, with headline CPI for June falling to 3.0%.  The Core CPI rate, which is closely watched by policymakers, also declined meaningfully over the quarter, but it remains elevated at 4.8%.  The continued downtrend in inflation should take some pressure off the Federal Reserve, although the market continues to expect a 25 bp rate hike in July.

Global equities posted gains during Q2, with the MSCI ACWI index rising 6.2%.  The index has gained 13.9% year-to-date. The S&P 500 gained 8.7% during the quarter, and it is now up 16.9% in 2023. International developed stocks gained 3.0% in Q2, bringing their 2023 gains to 11.7%. A stronger dollar detracted 130 bps from US$ returns during the quarter. Emerging market equities rose 0.9% in Q2, and have gained 4.9% year-to-date.  Latin America has been the best performing emerging market equity region this year.

Within fixed income (bonds), the Bloomberg Aggregate Index declined 0.8% during the quarter.  Treasuries declined 1.4%, lagging corporate bonds which fell 0.3%.  The yield curve shifted higher during the quarter, with longer-term yields near their levels at the start of 2023.

Global developed REITs gained 0.5% during Q2, lagging broader equity markets.  Infrastructure stocks declined 0.3% during the quarter. Commodities generally declined during the quarter, while natural resource stocks

A mild recession in the US later this year or in 2024 remains possible, as the Federal Reserve’s tightening cycle impacts the economy with a lag.  However, if inflation continues to trend lower, we do not expect a mild recession to be especially bearish for equities because the Fed would have some flexibility to ease, potentially offsetting the impact of weaker earnings. However, if inflation were to remain sticky or move higher, it could require the Fed to tighten more aggressively than the market is pricing, which could result in a deeper recession and further weakness for stocks and bonds.

Important notices

References to Mercer shall be construed to include Mercer LLC and/or its associated companies.

© 2023 Mercer LLC. All rights reserved.

This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without Mercer’s prior written permission.

Mercer does not provide tax or legal advice. You should contact your tax advisor, accountant and/or attorney before making any decisions with tax or legal implications.

This does not constitute an offer to purchase or sell any securities.

The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed.

For Mercer’s conflict of interest disclosures, contact your Mercer representative or see This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Mercer provides recommendations based on a client’s particular circumstances, investment objectives and needs. As such, investment results will vary and actual results may differ materially.

Information contained herein may have been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential, or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.

Past performance is no guarantee of future results. The value of investments can go down as well as up, and you may not get back the amount you have invested. Investments denominated in a foreign currency will fluctuate with the value of the currency. Certain investments, such as securities issued by small capitalization, foreign and emerging market issuers, real property, and illiquid, leveraged or high-yield funds, carry additional risks that should be considered before choosing an investment manager or making an investment decision.

Investment management and advisory services for U.S. clients are provided by Mercer Investments LLC (Mercer Investments). In November, 2018, Mercer Investments acquired Summit Strategies Group, Inc. (“Summit”), and effective March 29, 2019, Mercer Investment Consulting LLC (“MIC”), Pavilion Advisory Group, Inc. (“PAG”), and Pavilion Alternatives Group LLC (“PALTS”) combined with Mercer Investments. Certain historical information contained herein may reflect the experiences of MIC, PAG, PALTS, or Summit operating as separate entities. Mercer Investments is a federally registered investment adviser under the Investment Advisers Act of 1940, as amended. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Mercer Investments’ Form ADV Part 2A & 2B can be obtained by written request directed to: Compliance Department, Mercer Investments, 99 High Street, Boston, MA 0211

Contact Us