GSR Capital Management 3Q 2023 Newsletter

Market Update                                                           July 17, 2023                          

With a tip of the hat to the musician Prince, technology stocks are partying like it’s 1999.  Technology-fueled growth stock indexes continued to lead financial markets higher in the second quarter of 2023 due in part to excitement over artificial intelligence.  Interestingly, gains in growth stock indexes in the first half of 2023 almost exactly matched their loss percentage incurred last year.  For example, the Russell 1000 growth stock index was up 29.0% and the NASDAQ was up 32.3% year to date through June.  These two indexes were down last year by 29.1% and 32.5%, respectively.  Continuing a point I made in my previous quarterly update, big losses require a larger gain to recoup lost capital.  As a case in point, these two indexes will need to rally 41.0% and 48.1%, respectively from their end of 2022 levels to recoup last year’s losses, still well short of this year’s gains thus far of 29.0% and 32.3%.  By comparison, the Russell 1000 value stock index was up just 5.1% year to date through June, far less exciting than the gain in growth stocks.  However, that index was down just 7.5% last year, resulting in a required gain of only 8.1% to recoup its losses, 5.1% of which has already been reclaimed.  Hence the importance of striving to avoid large losses, especially for investors nearing retirement or in retirement.

Year to date through June the tech-heavy S&P 500 stock index was up 16.9%, the MSCI EAFE index of established foreign market stocks was up 11.7%, and the MSCI Emerging Market stock index was up 4.9%.  Bonds also were positive through June with the Bloomberg U.S. Aggregate index up 2.1%.

The 3rd quarter is off to a positive start so far as well.  Stocks, bonds, and other financial assets got a lift last week from an inflation report that came in more mild than expected.  Inflation as measured by the Consumer Price Index (CPI) last month was up just 3.0% from the previous year, below expectations and the lowest since March 2021.  Core CPI which excludes the more volatile food and energy prices was also below forecasts, up 4.8%.  While these are still well above the Fed’s 2% target, the trend is down, encouraging investors.  Hope is rising that the Fed is almost done raising interest rates and that there will be either no recession or just a mild recession.  I still expect our economy to enter a recession late this year or early next year, though the magnitude is a bigger unknown.

The most significant financial market reaction last week to the softer inflation data was a breakdown of the U.S. Dollar.  A widely watched index of the USD had been trading in a range since late last year prior to last week’s break below support.  A weak USD has historically been positive for foreign stock performance and commodities, including precious metals. 

Speaking of foreign markets, we are seeing new milestones in emerging markets.  For one, the United Nations estimates that India’s population will have exceeded China’s population by the middle of this year, making India now the most populated country on the planet.  Their economic growth is growing strongly as well, well in excess of developed countries.  India is now the 5th largest economy of the world, having recently surpassed the United Kingdom.  Their economy is projected by the IMF to be the 3rd largest in the world by 2027, exceeding that of Germany and Japan and trailing only the United States and China.  Investment opportunities clearly extend far beyond our own borders.

We are continually evaluating market conditions to identify areas of risk and reward and structuring client portfolios accordingly, in accordance with each client’s objectives and risk tolerance.  If you would like to discuss your portfolio and our positioning in greater detail, do not hesitate to reach out to us.

I wish you and your family an enjoyable summer.

Sincerely,

Glenn S. Rank, CIMA®

Certified Investment Management Analyst®

President

·         GSR Capital Management, Inc. is a Registered Investment Adviser. This market update is solely for informational purposes. Advisory services are only offered to clients or prospective clients where GSR Capital Management and its representatives are properly licensed or exempt from licensure. GSR Capital Management is not a tax advisor.  Past performance is no guarantee of future results. Investing involves risk and possible loss of principal capital. No advice may be rendered by GSR Capital Management unless a client service agreement is in place. If you do not wish to receive marketing emails from this sender, please send an email to info@gsrcapitalmanagement.com.

·         Expressions of opinions are as of this date and are subject to change without notice.

·         The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

·         The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market.  The MSCI EAFE index and the MSCI Emerging Markets index are unmanaged indexes compiled by Morgan Stanley Capital International that are generally considered representative of the developed international stock market and emerging international stock market, respectively.  International securities involve additional risks including currency fluctuations, differing financial accounting standards, and possible political and economic volatility, and may not be suitable for all investors.  Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. NASDAQ covers 4500 stocks traded over the counter. It represents many small Composite index company stocks but is heavily influenced by about 100 of the largest NASDAQ stocks and is a value weighted index calculated on price change only and does not include income. The Russell 1000 Growth Index represents a segment of the Russell 1000 index with a greater-than-average growth orientation. Companies in this index have higher price-to-book and price-earnings ratios, lower dividend yields and higher forecasted growth values. The Russell 1000 Value Index represents a segment of the Russell 1000 index with a less-than-average growth orientation. Companies in this index have low price-tobook and price-earnings ratios, higher dividend yields and lower forecasted growth values. The Bloomberg US Aggregate Bond index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the U.S. Inclusion of these indexes is for illustrative purposes only.  Keep in mind that individuals cannot invest directly in any index and index performance does not include transaction costs or other fees, which will affect actual investment performance.  Individual investor’s results will vary.

·         Investments & Wealth Institute™ (The Institute) is the owner of the certification marks “CIMA,” and “Certified Investment Management Analyst.”  Use of CIMA, and/or Certified Investment Management Analyst signifies that the user has successfully completed The Institute’s initial and ongoing credentialing requirements for investment management professionals.