Investment Outlook – What Lies Ahead In the Second Half of 2023?

Alevin Chan

Alevin Chan

Last updated 20 July, 2023

The markets in 2023 have been showing some surprising results so far, but uncertainty still clouds the horizon. Here’s what may lie ahead for investors as we enter the second half of the year.

Whoever said investing is boring obviously doesn’t keep up with market news.

In June 2022, the S&P 500 – a widely referenced benchmark that tracks the performance of the top 500 companies listed in U.S. stock exchanges – fell by 20% for the year. What immediately ensued were panicked headlines such as: “Stocks slide to close worst first half in 52 years”.

Then, 12 months later, we’re getting headlines like this one: “Blistering stock returns this year make the case for a strong second half”.

Both of these, by the way, were from the same online news portal.

The point is, nobody really knows what’s going to happen in the stock market. All we can do is guess. But there’s a right way and a wrong way to go about your guesses, and it is in the spirit of the former that we write this article.

Here are three market developments that investors can consider paying attention to.

Note: The information in this article is for educational purposes only. The views expressed here are merely opinions, and should not be taken as investment advice. Please consult a qualified financial adviser before making any investment decisions.

1. The S&P 500 is poised for a bullish second half  

Here’s how the S&P 500 has been doing in 2023 so far:

Notice how from 2023, the index has been on a bull run up, up and away? In fact, the index is now up by 16.2% (at the time of writing) since the start of the year.

If the idiom “history seldom repeats but it often rhymes” holds true, we may very well be in for a bullish second half of the year.

This is because historically, whenever the S&P 500 had a green first half, a positive return in the second half of the year almost always follows.

It was observed that since 1945, when the index made a positive return in the first half of the year, it was followed by further gains of around 5% on average in the next half.

If first-half gains of 5% or more were seen, second-half gains tended to be even stronger, at around 6% or more. High first-half gains of 10% or more would produce, on average, 8% gains in the second half of the year.

Of course, this trend is not guaranteed, and we could be in for a slowdown from this point forward, But the fact remains that the S&P 500 has had a pretty good track record so far.

The index has consistently managed an annualised average return of around 11%, and it’s hard to argue with those kinds of results.

See also: Investing In Exchange Traded Funds (ETFs): A Newbie’s Guide To Getting Started

2. The U.S. recession has been cancelled (or maybe delayed)

Since 2022, the world has been ruminating about the big R-word. All eyes were on the American economy, with watchers expecting each interest rate hike to be the one that finally makes it all come crashing down.

Well, you can put away your binoculars – at least for the time being. Given the expectation-defying performance of the U.S. economy so far, some pundits are now openly declaring that the U.S. recession is simply not going to happen.

The reason why the U.S. has managed to escape from this bleak fate boils down to one simple metric: the American job market has remained strong, defiantly so.

In May, employers added over 339,000 new jobs, which was above analysts expectations. Importantly, this was more jobs added in a single month than any in 2019 – a year in which the job market was very strong.

More jobs means more salaries, which means more consumer spending. Consumer spending, as any economics major will tell you, is an important factor in keeping an economy going, especially one as advanced as the U.S.’

Therefore, a strong jobs report cannot be read as anything other than a good sign.

But we’re still not completely out of the woods yet. While prospects for the second half of 2023 are no doubt brightening, some analysts still insist that 2024 carries a palpable risk of recession.

What to do with these conflicting views? Well, perhaps it’s ok to be a little optimistic, but probably don’t throw everything you have at the stock market just yet.

See also: Best Places To Put Your Money During A Recession

3. AI stocks could be the next wave of growth

ChatGPT (and its just-as-disruptive peers) has captured no small amount of attention the world over. It has also stolen more than a few jobs, but that only strengthens the case for AI as the next wave of growth.

AI is so much more than just ChatGPT. It is being developed and deployed in several important industries, including pharmaceutical and healthcare, cybersecurity, manufacturing, education and banking and finance.

There is yet more to come. As AI becomes more and more capable – and given its capacity to teach itself, and go beyond human knowledge – adoption is expected to grow at exponential rates, even faster than what was seen with the Internet, social media and mobile phones.

This means that AI stocks, which are mostly in their fledgling stage, could present an opportunity for investors to get in at the ground floor (so to speak) and ride the wave all the way up.

Admittedly, AI stocks are right now a long-term play, rather than something that could pay off in the next six months or so. Still, they could be a worthy contender for that small slice (no more than 5% of your portfolio, please!) reserved for speculative moonshot bets that best describe AI stocks at this point.

To bolster your risk management, try investing in AI ETFs instead of individual stocks. That way, you’ll gain good exposure to several leading AI players – which also happen to be familiar names like Meta, Google, Nvidia and Apple – as opposed to risky, overly concentrated positions.

See also: How To Invest In The AI Boom: AI Stocks And AI ETFs To Watch Out For

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An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.


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