Performance | Friday, July 21, 2023

Schwab Intelligent Portfolios & Q2 2023 Market Performance¹

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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)


Index total returns (%)

Asset Class Q2 2023 1 Year 3-Year
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

Source: Morningstar Direct, as of June 30, 2023. Performance figures shown are total returns for each asset class during the designated period. Indexes used are: U.S. large cap stocks, S&P 500® Index; U.S. small cap stocks, Russell 2000® Index; International developed market Large cap stocks, MSCI EAFE Index; U.S. real estate investment trusts, S&P United States REIT Index; High-yield bonds, Bloomberg High Yield Very Liquid Index; Emerging markets stocks, MSCI Emerging Markets Index; International developed market small cap stocks, MSCI EAFE Small Cap Index; Municipal bonds, Bloomberg Municipal Index; Investment-grade corporate bonds, Bloomberg U.S. Credit Index; Securitized Bonds, Bloomberg Securitized Index; Emerging markets bonds, Bloomberg Emerging Markets Local Currency Government Bond Index; Treasury Inflation Protected Securities, Bloomberg TIPS Index; U.S. Treasuries, Bloomberg U.S. Treasury 3-7 Year Bond Index; Gold and other precious metals, LBMA Gold Price PM. Past performance does not guarantee future results. Indexes are unmanaged and cannot be invested in directly.

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