Summary: Q2 2023 finished roughly in line with expectations as performance across broad assets classes was largely driven by seasonal tailwinds, disinflation, AI, and overweight bearish sentiment correcting itself (which remains high from a historical perspective). Both the S&P 500 and Nasdaq 100 continued to steadily regain last year’s losses, with year-to-date gains recovering more than half of the 2022 bear market. These gains were relegated to a handful of mega caps as inflows seemed unwilling to gamble on smaller, riskier plays. Breadth remained fairly narrow.

Performance: Q2 2023 portfolio performance underperformed risk assets despite accurate assessments as to how broad macro themes would progress. The lack of performance was entirely driven by overconcentration in high risk plays that underwent longer term consolidation than was expected. This consolidation came after outsized performance in Q1 and early Q2 strength which quickly reversed, negating the opportunity for another strong quarter. This suggests a need for added emphasis on timing models in order to avoid similar results in the future.

Outlook: Increasing hawkish rhetoric may damper outlook for equity indices going into the back half of 2023, but I remain confident that new highs are on the table for tech heavy indices. Something will break, as is the case with every tightening cycle, and vigilance must be maintained in order to protect year-to-date profits. It does not seem to be the case that what breaks will occur this year, however, let alone Q3. I retain a bullish posture until sentiment, which is uniquely bearish, capitulates.