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Canterbury Review: Second Quarter 2023

Markets Improve Amidst Cooling Inflation

  • In the second quarter, the U.S. equity market continued its strong performance with technology stocks leading the way once again. Additionally, the consumer discretionary sector helped bolster returns as well. Whereas staples, utilities, and energy were a headwind, showing a continued preference for growth over value among investors. 

  • International developed equities and emerging markets (EM) equities also rose in the quarter despite rising interest rates and continued inflation concerns. Both developed and EM equities lagged their US counterpart. Countries that performed well included Brazil, Greece, Taiwan, Poland, and India.

  • Amid elevated inflation, the Federal Reserve raised the key interest rate by 25 basis points in May to a range between 5.00% - 5.25%. In June, the FOMC agreed to keep rates unchanged but projected that they would need to raise rates two more times this year by 25 bps each. They have signaled uncertainty whether the three bank failures of this year would cause tighter lending standards, which would benefit the Fed’s goal of slowing economic activity to tame inflation.

  • The treasury yield curve increased across the curve as a result of positive economic and labor market data. Inflation/rate expectations were revised by the market, causing yields to rise. Investment grade (IG) spreads narrowed from 145 basis points (bps) to 130 bps over the quarter while high yield (HY) spreads narrowed from 458 bps to 405 bps.

  • Inflation, measured by CPI, significantly decreased but remained elevated over the quarter to a year-over-year rate of 3% in June. CPI excluding food and energy, generally viewed as sticky inflation or Core CPI, fell but also remained elevated at a year-over-year rate of 4.8%. Indicators used to measure U.S. economic activity such as the ISM Manufacturing and Non-Manufacturing indexes, continued to decline over the quarter, albeit at a slower pace.

To view the second quarter reports, click on the links below: