Quarterly Perspectives - Second Quarter 2023

As we enter the third quarter of 2023, we take a look at several trends to provide perspective on current events. Our second perspectives looks at rate increases nearing an end, the persistent strength of the job market, inflation outlook, and how rebalancing helps tax-loss harvesting.

Rate increases nearing an end

  • Federal Open Market Committee (FOMC) comments and market projections are pointing to 1-2 more Fed rate hikes.
  • The FOMC's long-term goal for the Fed rate is 2.5%, but "higher for longer" sentiment indicates that Fed rate cuts may not begin until 2024.
  • Yields on short-term cash investments such as money markets and CDs likely to face downward pressure in the next 6-9 months.
  • Outlook for rates may present an opportunity to build portfolio with longer-term, high quality bonds.

Graph showing federal funds rate expectations - INTRUST 2023 Q2 Perspectives


Persistent job market strength

  • Strong U.S. labor market increasing the likelihood of a "soft landing."
  • Labor-participation rates returning to pre-pandemic levels but U.S. employers have created millions of new jobs to be filled.
  • Household financial health, which had improved during the pandemic largely due to fiscal stimulus, is facing headwinds from inflationary pressures.
  • Labor shortage may lead to above-average wage increases.

Graph showing prime-age participation - INTRUST 2023 Q2 Perspectives


Inflation outlook improving, but still a long way to go

  • Since its peak in June 2022 at 9.1%, U.S. inflation has dropped 11 consecutive months.
  • Core inflationary areas, such as housing, remain elevated but leading indicators are easing.
  • Tight labor market conditions continue to contribute to services inflation.
  • Fed remains committed to reaching their long-term target of 2% inflation.

Graph showing CPI and core CPI over time - INTRUST 2023 Q2 Perspectives


Consistent and frequent rebalancing helps tax-loss harvesting

  • In the 10-year period ending 12/31/2022, only 31% of S&P 500 stock prices, on average, have ended a year negative (see chart below), while nearly half of these stocks are in the red on a daily basis.
  • Those who tax-loss harvest only once a year miss out on the full potential of tax-loss harvesting.
  • A tax-smart trading platform, such as SmartLeaf used by INTRUST, that tax-loss harvests frequently during periods of volatility provides an opportunity for better after-tax portfolio performance.
  • In volatile equity markets, nimble trading platforms can capitalize on price swings.

Graph showing proportion of S&P 500 companies with negative price performance - INTRUST 2023 Q2 Perspectives

The INTRUST Quarterly Perspectives are the consensus of the INTRUST Investment Strategy team and are based on third-party sources believed to be reliable. INTRUST has relied upon and assumed, without independent verification, the accuracy and completeness of this third-party information. INTRUST makes no warranties with regard to the information or results obtained by its use and disclaims any and all liability arising out of the use of, or reliance on, the information. The information presented has been prepared for informational purposes only. It should not be relied upon as a recommendation to buy or sell securities or to participate in any investment strategy. The Quarterly Perspectives are not intended to, and should not, form a primary basis for any investment decisions. This information should not be construed as investment, legal, tax or accounting advice. Past performance is no guarantee of future results.

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