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Financial Literacy

What Happened To The Financial Markets In Q2, 2023?

Yelena Stepanyan, CFA, MBA
Yelena Stepanyan, CFA, MBA

Head of Investments

After a difficult 2022, global equity markets ended the first half of this year on a positive note supported by moderating inflation, strong labor market, and further signs of resilient economy despite higher and rising interest rates.

The advance was led by developed markets, notably the US, where excitement over artificial intelligence boosted technology stocks. Markets did go through some bumps during the quarter, including a political battle over raising the US debt ceiling. The fears of the US default were short-lived though, as an agreement to suspend the limit until 2025 was eventually passed.

The second quarter was marked by strong signs of moderating inflation.

In the most recent reading for May, headline inflation in Canada dropped by a full percentage point to 3.4%. Across the border, the US inflation also came down to 3% in June, the lowest reading in over 2 years. However, inflation remains far above the Central Banks’ 2% target.

In terms of the monetary policy, the Bank of Canada raised its benchmark interest rate to 4.75% in June, the highest level since 2001. (They also hiked by another 25 bps on July 12th bringing the rate to 5%). In the meantime, the policymakers signaled a pause to assess the impact of higher rates on the economy.

During the second quarter, Canadian bonds gave up some of the gains made in Q1 as yields rose with expectations of further interest rate hikes for the year.

The Canadian bonds were down 0.7% in Q2 but is still up 2.5% year-to-date.

As of the June 30, 2023, global equities are up 13.4% so far this year, US equities returned 16.9%, while Canadian equities only increased by 5.7%.

This divergence between Canada and US can be mostly attributed to the TSX’s significant exposure to energy and materials, which have been the worst performing sectors this year. Moreover, the bulk of the rally in the S&P 500 was dominated by mega cap technology names while the rest of the market was relatively flat.

 Market Performance – Q2, 2023

  Benchmark Q2 Return YTD Return
Global Equities S&P Global Broad Market Index 6.0% 13.4%
US Equities S&P 500 8.7% 16.9%
Canadian Equities TSX Composite 1.1% 5.7%
Canadian Bonds FTSE Canada Universe Bond Index -0.7% 2.5%


Yelena Stepanyan, CFA, MBA
Written by Yelena Stepanyan, CFA, MBA

Head of Investments

Yelena Stepanyan is the Head of Investments at Embark. A lover of all things related to the financial markets, she is currently the Chair of the Chartered Financial Analyst Society Toronto's Institutional Asset Management Committee.