By Craig McAvinue – 5 July, 2023
“Innovation is the ability to see change as an opportunity, not a threat.”
We’ve reached half-time for the 2023 season, and with June providing a very positive month across the board for developed markets, the first six months of 2023 have gone a long way toward recouping last year’s losses.
Data table is from Google Finance
On the foreign exchange front, the USD gave back a little against GBP, AUD and EUR but still remains relatively strong
Data table is from Google Finance
So what to make of the first half of 2023? The raw numbers certainly look good, but I think it would be premature to suggest we’re out of the woods and looking ahead to another few years of raging bull markets.
The winners so far have largely come from the technology sector. A repeat performance in the second half of 2023 would see the S&P record its seventh best year on record. Meanwhile the tech-heavy Nasdaq recorded a huge 32% increase in the six months to June, a repeat of which would rank as its second best year ever.
The Japanese Nikkei market is also experiencing growth not seen for many decades, with nearly a 30% increase so far in 2023. You would have to go back to 1972 to see similar returns.
Lifting the bonnet (“hood” for you Americans) on these gains reveals heavy market buzz around Artificial Intelligence. Companies with an AI focus have been gaining traction, with comparisons being made to the innovative businesses in the nineties that were at the forefront of the internet revolution. Electric vehicles have their own buzz, along with increasing global sales, most notably in China.
Companies at the forefront of the AI revolution are creating tremendous value. Nvidia increased its value 192% this year and joined the trillion-dollar club. Tech giants Facebook (+130%) and Microsoft (+42%) are developing AI solutions and seeing massive increases in their market capitalization. Tesla’s business is built around AI and electric vehicles; it’s up 142% this year
It’s often said that markets are highly emotional places. A portion of these gains are also attributed to over-selling during the enormous decreases during a tumultuous 2022, when we saw the following drops:
Unless they have the right expertise, no readers should be buying direct equities (shares of individual companies). Rather, they should be diversifying and managing risk by using funds where managers and analysts are better placed to decide if Tesla is a buy, Microsoft a sell, etc.
My feeling is there is still some value there, but the recent gains will likely see some profit taking in the companies mentioned. The sector offers more than AI and electric vehicles, however, and a well-managed tech fund will likely see continuing growth this year and in the longer term.
Man’s ability to innovate has never been in doubt and it’s this innovation that drives growth.
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