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Stock Market Outlook: 3 Charts that Explain 2023

Read Time: 4 Minutes

The equity-markets rally in the first half of 2023 came to a halt in the third quarter, with the S and P 500 down over 3%. Growth-stock optimism that drove the first-half rally waned as investors absorbed the impacts of a “higher for longer” interest-rate scenario.

What should financial advisors look out for as 2023 closes?

Investors need help understanding what recent headlines mean for their portfolios and financial goals. Here are three charts that show what’s happening in the stock market, and how advisors can talk about it with clients.

Stock Markets Narrowly Missing the End of a Downturn

After nearly making a recovery—the S and P 500 was just 1.2% below its July 2021 peak—a 6.4% loss in August and September kept the index in negative territory. Reduced optimism and multiple contraction put the market further from a full recovery than it was in the second quarter.

Still, the index is only 7.6% off all-time highs. The index had fallen 23.9% at the end of September 2022 after entering downturn status in January 2022.

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What to say when clients ask, “Where’s the stock market heading?” A downturn is defined as a 20% or more decline in the stock market from its peak. In 2022, the stock market entered a downturn under pressure from rising interest rates, elevated inflation, and conflict in Eastern Europe.

While the S and P 500 almost bounced back from 2022 losses, recent losses keep it in downturn territory. Sentiments are mixed: central banks have indicated a potential end to rate hikes, but signaled that persistent inflation may keep rates higher for longer than expected.

Should Investors Focus on Equities in Emerging Markets?

We look at broad equities and ask two questions. What percentage of assets in the broad asset-class grouping are undervalued versus overvalued under our approach? How wide are the valuation “spreads” between the cheapest and most expensive assets in the broad asset class?

After running the comparisons using both these methods, emerging-markets equities seem cheap enough to sharpen the pencil.

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What to do when clients ask, “Should I buy emerging-markets equities?” Some mutual funds and ETFs offer targeted exposure to emerging markets. To decide what approach makes sense for your client as we near 2024, look at aggregated holdings across a portfolio.

What percentage of a client’s total investments come from emerging-markets equities? How does this compare to benchmarks for their investing goals and time horizon?

Nvidia’s Increased Concentration in Broad Indexes During the Rise of AI

With excitement around artificial intelligence, it’s natural to look to the “picks and shovels” enabler of this supercharged trend.

Enter Nvidia.

Already on the right side of demand (its chips power Graphical Processing Units for gaming functionality), AI-related chip interest has vaulted Nvidia into the collective consciousness of speculators and serious investors alike. This has led to a significant index weight versus three years ago.

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What to do when clients ask about Nvidia: Show investors how changing index weights affect their overall portfolio. In Advisor Workstation, financial advisors can generate reports that reveal the proportions of net underlying holdings, like Nvidia. You can highlight stock intersections across all the funds a client holds.

Keep Clients Up-to-Date on Market Moves with Advisor Workstation

Through market ups and downs, clients need clear information on their portfolios so they can stick to their long-term plans.

Morningstar financial advisor tools combine timely market analysis with investment planning, reporting, and more. You can use over 60 Finra-reviewed templates to turn a complex subject into clear action steps.

See Advisor Workstation for yourself with a 20-minute demo.