The second quarter of 2023 was another positive quarter for stocks, led by growth stocks. This continued the trend of many of the hardest hit stocks and sectors in 2022 leading the gains in the first half of 2023. This was seen in the NERT Model Allocation in the T. Rowe Price Growth Fund, which was up 13.8% for the quarter and is now up 32.2% in the first half of the year. While stocks helped investors in the 2nd quarter, interest rates moved higher pushing most bonds, particularly intermediate and longer duration bonds, lower for the quarter. Despite the pull back in the quarter, bonds are still mostly higher so far in 2023, providing a joint recovery in stocks and bonds for investment markets following a difficult 2022 for both asset classes.
This quarter began with nervousness around stalled debt ceiling negations in the US. Once this was resolved it provided a tailwind for stocks. The debt ceiling will now be suspended entirely until January 2025. As stated in previous commentaries, the market is still very much focused on central bank policy. In the United States, the Federal Reserve paused interest rates in their June meeting, breaking a streak of 10 consecutive rate hakes. This was considered by many a hawkish pause, as despite the pause Chairman Powell indicated in the question-and-answer session that as of now the intention of the Fed is to continue to make additional raises this year with the consensus targeting two additional 25 basis point raises in 2023. This of course will depend heavily on the inflation and employment data.
2nd QTR 1YR 3YRS 5YRS
Stable Income 0.25% 1.17% 1.22% 2.35%
Conservative Income 1.53% 4.11% 3.00% 3.65%
Traditional Pension 4.35% 9.81% 6.84% 5.90%
Equity Oriented 5.87% 13.24% 10.79% 7.89%
NERT Model Allocation – Choices for every investor
The NERT model allocations are designed to help participants build diversified allocations to capture the major market sectors and a variety of management styles. They are offered to aid typical participant needs for diversified, risk-adjusted allocations. NERT rebalances allocations on a regular basis attempting to keep a consistent risk and asset posture. The allocations will maintain some exposure even in underperforming classes. Diversification, by definition, means not all assets can have positive performance every period. The NERT model allocations are designed to allow any investor to participate in proven ways to reduce risk and improve returns over longer periods.
Given the current limitations on withdrawals from the Principal U.S. Property Fund, we created model allocations that removed the Principal U.S. Property Fund.
Andrew Casteel, CIO, CFP
Acorn Financial Advisory Services, Inc.