Monthly Market Update — September 2021

Key Points

  • Scaling the Wall of Worry Despite continued rate hikes, stubborn inflation, a banking crisis, and a drawn-out debt ceiling drama, risk assets performed very well in the first half of 2023, boosted by decent gains in June. U.S. equities led the major asset classes in the first half while international bonds trailed.
  • Slow Motion Slowdown GDP slowed in the first quarter, but not as bad as previously thought. Estimates of U.S. economic growth for the first quarter saw a strikingly large upward revision in June with the third, and final, government estimate – coming in at +2.0% from the prior estimate of -1.3%
  • Earnings Season Starts The second-quarter earnings season is set to kick off and Wall Street analysts’ consensus expectations are for a -9% year-over-year decline in S&P 500 earnings per share, which would be the third quarterly decline in a row, and if it materializes, the -9% drop would be the steepest since Q2 2020.
  • Not out of the woods yet Although markets have been able to scale the wall of worry in the first half, several challenges remain in the second half. The yield curve is in a historic inversion, China and the eurozone are facing recessionary pressures, corporate bankruptcies are on the rise, Americans are close to exhausting their excess savings, the 3-year hiatus for student loan payments is ending, and central banks are still hiking rates.
  • Quality is Job One Quality companies (positive earnings and cash flows, solid balance sheets, growing dividends, lower leverage, etc.) have trailed so far in 2023, but with interest rates likely to stay higher for longer, credit conditions getting tighter, bankruptcies rising, and headwinds facing consumers, we continue to emphasize high-quality assets. High-quality companies can participate in market rallies while protecting the downside.

Market Summary

Asset Class Total Returns

[Market Update] - Asset Class Total Returns June 2023 | The Retirement Planning Group

Source: Bloomberg, as of June 30, 2023. Performance figures are index total returns: US Bonds (Barclays US Aggregate Bond TR), US High Yield (Barclays US HY 2% Issuer-Capped TR), International Bonds (Barclays Global Aggregate ex USD TR), Large Caps (S&P 500 TR), Small Caps (Russell 2000 TR), Developed Markets (MSCI EAFE NR USD), Emerging Markets (MSCI EM NR USD), Real Estate (FTSE NAREIT All Equity REITS TR).

With just a few exceptions, most major asset classes finished the month, the second quarter, and the year’s first half higher. Here’s where the major indexes stood at the end of June:

S&P 500 Index | U.S. Large Cap Equity

  • June: +6.6% (the best month since October 2022)
  • Second Quarter: +8.7% (the best quarter since Q4-2021)
  • First Half: +16.9% (second-best start to a year in the last 25 years)

Russell 2000 | U.S. Small Cap Equity

  • June: +8.1% (the best, and first positive, month since January)
  • Second Quarter: +5.2%
  • First Half: +8.1%

MSCI EAFE | Developed International Equity

  • June: +4.6% (on pace for best month since January)
  • Second Quarter: +3.2%
  • First Half: +12.2% (continues to trail U.S. equity, but solid returns)

MSCI Emerging Markets | Emerging Market Equity

  • June: +3.8% (the best month since January)
  • Second Quarter: +1.0% (has trailed developed internationally in 9 of 10 last quarters)
  • First Half: +5.0% (less than half of developed international)

Bloomberg Aggregate Bond | U.S. Bonds

  • June: -0.4% (challenged by stubborn inflation and rising rates)
  • Second Quarter: -0.8%
  • First Half: +2.1

Bloomberg Aggregate Bond ex U.S. | International Bonds

  • June: +0.3%
  • Second Quarter: -2.2% (weighed down by aggressive central banks and the rising U.S. dollar)
  • First Half: +0.8%

Investors celebrated in June as several major bricks in the “wall of worry” were removed. The Federal Reserve (Fed) paused its interest rate hiking campaign in June, the U.S. averted a default as legislation to lift the Debt Ceiling was passed, banks passed the Fed’s stress tests, and headline inflation (the Consumer Price Index, or CPI) slowed to its lowest level since March 2021. All that, as well as a wave of exuberance regarding Artificial Intelligence (AI) that sent the technology sector (the largest sector in the S&P 500 Index) surging, helped global equities to their second-best six-month start to a year in more than 20 years. Technically the S&P 500 crossed the +20% threshold above its October 2022 lows marking a new bull market. Economic growth (as measured by Gross Domestic Product, or GDP), and corporate earnings, are still slowing. Still, the rate of the slowdown hasn’t been as bad as initially projected and the market is making the case that a deep, and/or prolonged, recession isn’t likely any time soon.

That is good news and supported by several better-than-expected economic reports in June – beyond the inflation/CPI data. Consumer Confidence surprised to the upside, housing data (housing starts, building permits, new & existing home sales) was positive in June, and job creation continues to be above the pre-pandemic average.

Still, there remain plenty of challenges as we look ahead to the second half of the year. The June ISM Manufacturing PMI survey fell deeper into contraction to its lowest level since the pandemic lockdowns and has been in contraction territory for eight straight months. Other large economies are also facing recessionary pressures as China’s Manufacturing PMI moved back into contraction territory for the third straight month and the Eurozone fell to its lowest level in three years. Factory Orders were a big miss and dipped into negative territory for the first time since October 2020 on a year-over-year basis. Unemployment Claims have begun to trend higher (the 4-week average is at its highest level since 2021) and the Unemployment Rate hit its highest level since 2022.

We’re encouraged that the markets seem to be calling for a mild recession at worst and many macroeconomic indicators have come in better than expected recently. Nevertheless, we remain in a challenging macroeconomic environment that requires versatility, patience, and a long-term perspective. With earnings and economic growth still slowing, global central banks still hiking, and credit conditions still challenging, we believe investors should lean into higher-quality exposures that may be better positioned to weather higher interest rates, tighter credit conditions, and a slowing economy, but still participate in market rallies.

[Market Update] - Market Snapshot June 2023_Updated | The Retirement Planning Group

Source: Bloomberg, as of June 30, 2023.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Quick Takes


U.S. economic growth cooled in the first quarter, but not by as much as initially expected. Estimates of U.S. economic growth for the first quarter saw a strikingly large upward revision in June with the third, and final, government estimate. Real Gross Domestic Product (GDP), a measure of the value of all the goods and services produced in the U.S., expanded at an estimated +2.0% annual rate in the first quarter, which was much higher than last month’s estimation of +1.3% and higher than Wall Street forecasts of +1.4%. Consumer spending, the backbone of the U.S. economy, was the primary driver of growth, as Personal Consumption Expenditures (PCE) rose at a +4.2% pace, revised higher from the second estimate of +3.8%, which marks the highest level since the first half of 2021. Real Disposable Income was up for a third consecutive quarter, its largest in two years, rising a revised +8.5%, assisted by a one-time cost-of-living adjustment. The Saving Rate jumped to +4.3% from +3.4%. Business Investment and Government Spending were drags on economic activity, as both revisions were cut back from previous estimates. The report continues to signal that consumer spending is strong and is carrying continued U.S. economic activity. The surprisingly strong revision makes it more likely that the Fed Reserve will increase rates next meeting due to the continued economic activity. The Fed itself recently raised its GDP forecast for 2023 to +1.1% from +0.4%.

Slowing, But Not Nearly as Slow as Previously Thought

Real GDP, change from previous quarter (%)

[Market Update] - Real GDP, change from previous quarter June 2023 | The Retirement Planning Group

Note: Seasonally adjusted at annual rates.
Source: Commerce Department (actual); Bloomberg Economics’ GDP Forecasts


The second quarter earnings season is set to kick off and Wall Street analysts’ consensus expectations are for a -9% year-over-year decline in S&P 500 company earnings per share (EPS), which would mark the third consecutive quarterly decline in earnings growth. If it materializes the -9% drop would be the steepest since the second quarter of 2020, amid the Covid-19 pandemic when the S&P 500 EPS cratered -32%. Companies have been weighed down by flat sales growth, inflation pressures, and shrinking profit margins. Some strategists contend the bar has been set too low and expect that earnings have a good chance to surprise to the upside with better-than-expected earnings. Goldman Sachs expects companies will be able to meet the low bar set by Wall Street. Negative EPS revisions for 2023 and 2024 appear to have bottomed and revision sentiment has improved. Goldman estimates for 2023 EPS remain above consensus, but also think Wall Street forecasts for 2024 EPS growth of +11% are too optimistic and are forecasting less than half of that with +5% growth in 2024.

S&P 500 Earnings Growth Is Expected to Trough in Q2-2023

S&P 500 Year-over-Year Earnings Per Share (EPS) Growth

[Market Update] - S&P 500 Year over Year EPS Growth June 2023 | The Retirement Planning Group

Source: FactSet, Goldman Sachs Global Investment Research.


Headline Consumer Price Index (CPI) inflation came in at 3.0% year-over-year in June, down from 4.0% in May and 4.9% in April – and well below the 9.1% peak last June. But moving from the current 3% to the Fed’s target of 2% is likely to be much harder than the drop from last June’s 9.1% to 3.0%. As seen in the chart below, Energy is already detracting from CPI, after being a leading contributor to it for most of 2022. Food prices have normalized substantially from the high levels of the last couple of years. However, inflation from the so-called “stickier” components of inflation, such as the Services sector will be much harder to tame. That includes Shelter (rents and housing equivalent of rents) which is the top contributor to overall CPI and the Services component as well as Transportation. A still-strong labor market and resilient housing market, bolstered by historically low inventories, have held up much better than most economists expected. If consumers feel confident in their jobs and continue to spend, those two sticky components may challenge the Fed’s resolve to bring inflation back down to their 2% target rate and force them to keep monetary policy tight, or at least higher for longer than anticipated.

After a Two-Year Surge, Inflation is Now Trending Down

Contribution to Year-over-Year Percentage Change in CPI

[Market Update] - Contribution to Year-over-Year Percentage Change in CPI June 2023 | The Retirement Planning Group

Source: Bureau of Labor Statistics, Bloomberg.
Note: Not seasonally adjusted.


It appears the Fed’s rate hikes are having an impact on corporate America. Companies that need to borrow money to fund growth, or simply to stay afloat, are running out of options. Corporate bankruptcy filings for the first half of the year eclipsed those of any other comparable period since 2010, including the rush of filings during the first half of 2020, according to S&P Global Market Intelligence. “A rush of new U.S. corporate bankruptcies in June added to an already heightened pace of filings this year, reflecting the difficult economic conditions and higher interest rates companies are facing,” says analysts at S&P Global Market Intelligence. “Total filings for the first half of the year eclipsed those of any other comparable period since 2010, including the rush of filings during the first half of 2020.” Through June 30, there were 340 bankruptcy filings, not far behind the total of 374 in all of 2022. The default rate is a lagging indicator, with most of these defaults months in the making. As such, it is entirely likely that defaults may pick up as the Fed has pushed rates even higher from the point most of the 2023 defaults began. According to Moody’s Investors Service, the global default rate is expected to rise to 4.6% by the end of the year, higher than the long-term average of 4.1%. That rate is projected to rise to 5% by April 2024 before beginning to ease.

U.S. Bankruptcy Filings by Year

[Market Update] - US Bankruptcy Filings by Year June 2023 | The Retirement Planning Group

Source: S&P Global Market Intelligence.
Note: S&P Global Market Intelligences bankruptcy coverage is limited to public companies or private companies with public debt where either assets or liabilities at the time of the bankruptcy filing are greater than or equal to $2 million, or private companies where either assets or liabilities at the time of the bankruptcy filing are greater than or equal to $10 million. Includes S&P Global Market Intelligence-covered LIS companies that announced bankruptcy between Jan. 1, 2010, and June 20, 2023.


Somewhere around 43 million people in the U.S., about 17% of the adult population, have federal student debt. And according to the National Student Loan Data System, approximately 26.6 million—or about 10% of the adult population—had loans in forbearance as of the first quarter. That was a result of the federal government’s suspension of payments and interest accrual that began in March 2020 in relief response to the Covid-19 pandemic. The pause has since been extended eight times. The more than 3-year pause saved the average borrower approximately $15,000. Now that pause is ending as a result of the bipartisan debt-ceiling deal signed in early June. The Education Department says borrowers will be expected to make their first post-pause payment in October and interest will start accumulating on borrowers’ debt again on September 1. The U.S. Supreme Court threw out the Biden administration’s plan to forgive up to $20,000 per borrower on June 30. The restart of payments—which average about $400 a month—have Wall Street analysts projecting the potential crimp to consumer spending that is likely to come. Morgan Stanley expects most of the money for student loan bills will come from a reduction in discretionary spending rather than savings. Still, the impact economists are forecasting isn’t overly onerous. They see personal consumption expenditures and overall gross domestic product (GDP) ending 2023 about -0.1% lower than if payments remained in forbearance.

Student Loan Payments Will Restart in October

Number of Federal Student Loan Borrowers in Repayment and Forbearance

[Market Update] - Student Loan Payment will Restart in October June 2023 | The Retirement Planning Group

Source: National Student Loan Data System, The Wall Street Journal.

Asset Class Performance

The Importance of Diversification. Diversification mitigates the risk of relying on any single investment and offers a host of long-term benefits, such as lowering portfolio volatility, improving risk-adjusted returns, and helping investments to compound more effectively.

[Market Update] - Asset Class Performance June 2023 | The Retirement Planning Group

Source: Bloomberg.
Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% US Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Chris Bouffard is CIO of The Retirement Planning Group (TRPG), a Registered Investment Adviser. He has oversight of investments for the advisory services offered through TRPG.

Disclaimer: Information provided is for educational purposes only and does not constitute investment, legal or tax advice. All examples are hypothetical and for illustrative purposes only. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed. Please contact TRPG for more complete information based on your personal circumstances and to obtain personal individual investment advice.