Mid-Year Recap|Nasdaq Leads Major Indexes With a 31.7% Increase

For equity investors, returns this year have been steady, after a brutal 2022. The Nasdaq Composite has soared 31.73% this year as tech stocks gain optimism over artificial intelligence. Japan has been the standout, with stocks there staging a world-beating rally. Nikkei 225 index surged 27.19% year-to-date.

Optimism that the US central bank is approaching the end of its tightening campaign helped transform the technology-heavy gauge from 2022’s market underachiever to 2023’s champion. Some things haven’t changed much. High inflation and high interest rates are themes that have continued to dominate investor sentiment.

S&P 500 Enters a Bull Market

The S&P 500 has gained 15.91% this year, helping it recoup all of its plunge since the Fed kicked off its cycle of rate hikes in March 2022. The gauge is also up more than 20% from its Oct. 12 closing trough, leaving it above the threshold of what’s considered a bull market.

Of course, stocks have far surpassed Wall Street’s expectations for 2023. At the start of the year, strategists forecast that the S&P 500 would be flat this year.

Clearly, investors have a lot to digest as they ponder what lies ahead. They do, however, have some encouraging history to fall back on: A strong first half for the S&P 500 has typically led to another solid run in the remaining six months, according to data compiled by Bloomberg. 

Japan’s Back

Japan roared back as the Topix index hit a 33-year high. The growing acceptance of inflation might be one factor driving the gains, along with signs of better corporate governance. The market is also still remarkably cheap, with a large numbers of companies trading below book value or with very high levels of net cash.

It’s no wonder then that Japanese shares are even getting Warren Buffett’s endorsement. Buffett said it added to stakes in Japan's five biggest trading houses to beyond 8%, a move likely to highlight and add to the momentum driving Japan's stock market to new heights.

Buffett's investments and his optimism about Japan's prospects have drawn attention to improving economic conditions and shareholder-friendly corporate governance reforms that have helped underpin a sparkling rally in the Nikkei share average.