MARKET COMMENTARY

Equity markets remained rangebound through mid-May as lingering regional bank stress and financial stability concerns kept
sentiment in check, with the closure of First Republic on 5/1/23 marking the third mid-sized bank to fail in 2023, all within a
two-month period and the second-biggest bank failure in US history. US debt limit negotiations brought additional uncertainty,
lasting until days before the Treasury was expected to run out of funds to meet its obligations, with a deal finally reached. A
notable turning point in sentiment centered around Nvidia in late May where its updated guidance for 2023 implied growth far
above market expectations due to demand for its semiconductors used for AI applications, with AI-beneficiaries rallying
significantly on the news and for the remainder of the quarter. Ultimately, stocks finished Q2 2023 positive, and for fixed
income, changing expectations for the path of Fed policy sent rate-sensitive bonds slightly lower, whereas shorter-dated
securities remained insulated.

The US labor market continued to defy expectations in the face of a more restrictive policy environment, as job growth remained
solid, though beginning to show signs of slowing by the end of the quarter. Job openings remained elevated (1.6 openings for
every unemployed person), the unemployment rate historically low at 3.7%, and wage growth held steady. Q1 ‘23 GDP
expanded more rapidly than initially expected, revised up to 2.0% from its initial 1.3%, largely driven by strength in consumer
spending.
Headline inflation softened to 4.0% YoY, the lowest in over 2 years. After a 25bp increase at the May meeting which directly
followed the failure of First Republic and brought the benchmark rate range to 5.00%-5.25%, the FOMC left the target range
for the fed funds rate unchanged at its June meeting to allow additional time to examine incoming data. Economic projections
showed a majority of FOMC members were still predicting higher rates by the end of 2023, suggesting that the balance of
growth and inflation were not yet optimal, as Chair Powell noted “there is significant disinflation in the pipeline from rents,
but it will take time” and added that more policy restriction is coming due to labor market strength.
U.S. fixed income returns were subdued in Q2 as resilient economic data and more hawkish rhetoric than expected from the
Fed pushed interest rates higher. The 2-year increased from 4.06% to 4.87% and the 10-year increased from 3.48% to 3.81%
by the end of June, and high yield bond spreads narrowed by 53 bps. The Barclays Aggregate Bond Index finished Q2 down
0.84%, but up 2.09% year to date through June 30th.

Seven mega-cap companies – Apple, Microsoft, Amazon, Nvidia, Tesla, Alphabet and Meta – were responsible for two-thirds
of the S&P 500’s 17% return in the first half of 2023. Without their gains, broader market growth would have been far more
muted with the S&P 500 Equal Weight Index up only 6.9% over the same time period. Nonetheless, better earnings results
versus expectations and encouraging guidance from management teams helped maintain upward momentum as left-tail risks
began to subside. The S&P 500 and Dow ended up 8.7% and 4.0%, respectively. Non-US equities represented by the MSCI
EAFE Index and MSCI Emerging Market Index were up 3.0% and 0.9%, respectively.

ALTERNATIVE INVESTMENT COMMENTARY*

Hedge funds provided positive returns for the second consecutive quarter as the HFRI Fund-of-Funds Composite Index rose
1.8% in the second quarter of 2023. Volatility fell during the quarter amid moderating inflation and continued strength in the
U.S. economy, even in a high-interest rate environment. High beta ‘Equity Hedged’ and ‘Event Driven’ strategies were among
the best-performing strategies as the HFRI Equity Hedge (Total) Index and HFRI Event-Driven (Total) Index rose by 3.1%
and 1.6%, respectively. Relative value and multi-strategy hedge funds also contributed positively to the quarter and preserved
capital as the HFRI Relative Value (Total) Index and HFRI Multi-Strategy Index rose by 1.3% and 1.1%, respectively.
Although hedge funds lagged the recent rally in domestic equity markets, we believe Alternatives play an important
diversification role in portfolios.

*Data taken from HFRI (Hedge Fund Research Indices) as of 7/10/2023

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