By Jason Teed The second quarter of 2023 saw continued gains in equities, while safe-haven assets such as gold and long-term government Treasurys declined. The S&P 500 Index increased by 8.7%, reaching a 14-month high. However, it hasn’t surpassed the peak of the last bull market. This market growth coincided with signs of falling inflation, enthusiasm for recent developments in technology, and a pause in the Federal Reserve’s rate hike cycle. Additionally, the GDP for the first quarter was revised up from initial estimates. The debate over the debt ceiling during the quarter was resolved with relatively little drama at the beginning of June. Consequently, the markets continued their upward march. Inflation, a major headwind to market performance over recent years, showed a monthly increase of just 0.1% in May, bringing the annual rate to 4.0%—lower than anticipated. This allowed the Fed to decelerate federal funds rate hikes, increasing by 25 basis points in May and pausing in June. The Technology sector, buoyed by potential gains from emerging artificial intelligence advancements, helped propel the markets higher with a 15.4% gain. Consumer Discretionary stocks also did well, rising 13.8%. Utilities and Energy lagged for the quarter. Excluding Energy, the distribution of sector returns indicated a risk-on scenario for the market, suggesting investors have positive expectations. Bond rates continued to be shaped by increasing interest rates, but the impact was less dramatic than in previous periods. Rates increased across all maturities but most significantly in the 1- to 2-year range. Longer-term bonds didn’t see as much of a rate increase for the quarter. Long-term Treasurys fell in price by about 2.5% for the quarter. Gold took a breather from its recent run-up, dropping about 2.5% for the quarter. As the rising rate environment seems to be nearing its end, gold could experience favorable conditions that it hasn’t seen in a few years. Given this optimistic outlook, the metal’s recent market performance was likely a reaction to prior moves, rather than a fundamental shift in performance. Looking ahead, many market professionals continue to predict a recession, as various market indicators begin to slow. However, the stock market doesn’t appear to be reflecting these concerns. Recent GDP revisions and dwindling inflation pressures indicate that the Fed’s opportunity for a soft landing may be better than previously predicted. However, we could still see more volatility in the coming months if the Fed continues to increase rates and corporate earnings slow in response. Real estate, particularly commercial real estate, could also push the economy into recession. Given the unique nature of the market at the moment, predicting which factors will contribute the most to the economic backdrop in the coming months is difficult. Therefore, we believe an active approach to investments will remain particularly beneficial. Performance trends for the quarter Amid continued market outperformance, about 80% of our strategies were profitable for the quarter. Top-performing strategies tended to be aggressive, trend-following equity strategies, although multiple types of active management were successful for the quarter. Importantly, several strategies that had previously tended to be vulnerable to whipsaw events achieved strong returns for the quarter. Bond-based and conservative strategies tended to struggle, as bonds and gold were both down for the quarter, limiting the ability of these types of strategies to provide positive returns. Among our strategies that are available in multiple risk profiles, there was a high correlation between risk and return. The more aggressive strategies provided more positive returns. This type of behavior is typically seen during low-volatility markets that are in an upward trend.