Almost There, But Not Quite Yet

Throughout the second quarter of 2023, risk assets persistently rallied, driving equities closer to their all-time highs. The S&P 500 Index exhibited remarkable strength, surging 8% during the quarter, effectively re-entering a bull market, capping a remarkable run of over 20% since its lows in October. The techheavy Nasdaq Composite outperformed expectations, boasting its best first-half rally since 1983, with an astonishing return of over 30% year-to-date.

Despite the impressive rally of the Nasdaq this year, it continues to underperform both the S&P 500 Index and the traditional 60% stock, 40% bond (60/40) portfolio since the onset of the bear market in 2022. The reason behind this phenomenon lies in the math of loss. The Nasdaq experienced a more significant drawdown in 2022 compared to the 60/40 portfolio, leading to a divergence in overall returns. Investors should take careful note of this phenomenon and recognize the importance of limiting drawdowns in their investment strategies.

An Attempt at Recovery

to a

Source: Bloomberg, Redwood. Data as of 6/23/2023. Date Range from 1/1/2022 – 6/22/2023.