Downtown Madison, Wisconsin

Summer 2023

While focus may have bounced from the tribulations over the debt ceiling to the excitement over advancements in AI, the underlying issues for stock and bond investors continued to be interest rates and the Federal Reserve.

While focus may have bounced from the tribulations over the debt ceiling to the excitement over advancements in AI, the underlying issues for stock and bond investors continued to be interest rates and the Federal Reserve.

Economic Review

On June 8th, the stock market hit an official mark which must have surprised many investors: a definitional bull market. The S&P 500® Index was up 20% from its market low in October. The normal spirit behind a bull market was in distinct contrast to the overall economic mood, with persistent inflation, a Federal Reserve committed to keeping interest rates high, household debt rising, and the entire month of May mired in the debt ceiling crisis. Signs that the overall economy was beginning to stutter included a slowdown in bank lending, a continuing contraction of the money supply, and recent reports that manufacturing orders were down. Looking beneath the Index returns helps illuminate this disparity.

From our perspective, the most important aspect of the stock market this quarter and for the year has been the narrowness of the advances. A handful of large technology firms have been the main drivers of the gains, most recently behind the frenzy over AI (Artificial Intelligence). Just five stocks were responsible for 85% of the Index’s 9.6% gain through May . Early June activity, buoyed by the compromise in Washington, sent the Index into double digits. But it’s important to always keep in mind that the S&P 500 is a capitalization-weighted index with the largest stocks having an oversized impact on index returns. The ten largest firms constitute one-third of the entire index.

When each of the returns of all 500 stocks in the index is given equal weighting, the 9.6% year-to-date index return through the end of May is reduced to -0.6%. By early June, the trailing three-month period saw just 20% of the S&P 500’s stocks beating the overall index. If anything close to this low level prevails for the year, it will be a new 50-year record. By mid-year, the market gains were the narrowest since the Nifty Fifty era in the early 1970s and were reminiscent of the more recent tech boom of the late 1990s into 2000. Both cases signaled high risk and potential trouble for investors overly concentrated in the market’s darlings when they sport oversized valuations. This may prove to be a largely overlooked risk for popular capitalization-weighted index securities as well. One positive sign for a potential rotation to a broader rally was the strength in early June for economically-sensitive cyclical and small cap stocks.

While focus may have bounced from the tribulations over the debt ceiling to the excitement over advancements in AI, the underlying issues for stock and bond investors continued to be interest rates and the Federal Reserve. Elevated Fed fund rates are intended to act like a wet blanket laid on top of an overheated economy. The impetus currently driving investors is not just over the effect of that action but, more controversially, how long elevated rates will remain. Many believe the Fed will begin lifting that weight later this year. Others believe the Fed’s refrain to expect elevated rates for “some time.” The principal target of the Fed’s sharpest rate increases in history has been inflation. The latest readings show a continued downward trajectory, but rates remain well above double the targeted 2% level. Overall economic growth has slowed but remains positive, with GDP growth in the first quarter at 1.1%. Projections suggest slower growth ahead, even with persistent strength in the job market. Parsing through recent Federal Reserve Board statements shows a frustration with stubborn inflation. As such, the possibility of yet more rate increases remains. However, the statements also include hints that the current rates may be restrictive enough to dampen it with patience. The jury is still out if that patience includes a period of negative growth — in other words, a recession.

As we prepare for the remainder of 2023, we will be focused on economic indicators, especially the employment metrics, since job loss is often the last shoe to drop in a slowdown. Over the past year, earnings estimates for all the S&P companies have dipped by 10%, a trend many believe is not yet over. We believe investors should be braced for the typical lagging impact of higher rates and the possibility that the Fed will keep rates high at least through 2023. In the meantime we are seeing historically attractive yields from bonds and a nice reversal from 2022 in terms of bond returns. The sustained narrowness of the stock market should make security selection paramount and could pressure returns, particularly for speculative companies which have been the main drivers of the market advance so far this year.

News you can use

New Investor Account Online Access

Enhancements to our investor online account access have been released. The new site makes it easier for you to view your portfolio and manage your account at home or on the go with compatibility to your mobile phone, tablet, laptop or desktop computer.
Your username and password to login will not change. However, for your security, you will be prompted to take the following additional steps the first time you access the site:

  • Enter your current username and password in the section titled Existing User.
  • Next, you will be prompted to enter the last four digits of your social security number (SSN) and your Madison Funds account number, which can be found on your investor statement.
  • On the following screen, enter your preferred mobile phone number or email address.
  • We will immediately send a security code to your chosen device or email address, along with instructions for entering it into the website. Successful completion of this step will verify your identity.

NEW USERS. If you are new to online access, and don’t have a username and password, follow the steps under the New User section to create a username and password and initiate the two-factor authentication process.
If you have any questions or need assistance accessing your account, please call Madison Funds Monday through Friday from 8 a.m. to 7 p.m. CT at 1-800-877-6089.

Semiannual Report 

The Madison Funds semiannual report dated April 30, 2023 is now available online and in print by request. The report contains important information about your fund’s performance and expenses, including a complete list of portfolio holdings and detailed financial statements. We do not mail printed copies of the report unless you specifically request one to be mailed. The report is available on our website at, and we notify you by postcard or email each time a new report is issued. You may elect to receive a printed copy of the report, free of charge, by calling Madison Funds at 1-800-877-6089. Your election to receive a printed copy of the report will apply to all funds held with Madison Funds.

Electronic Delivery of Fund Information

If you have not consented to receive shareholder reports and/or investor statements electronically, you can enroll in e-delivery on our website. For many of you, we offer the ability to consent to receive the Funds’ required compliance reports and your investor account statements by email. “Consenting” to electronic delivery will provide you with fund information faster and it reduces the amount of paper used to produce the documents which benefits the environment and reduces fund expenses.

To enroll, log-in to Account Access at and click on “Account Settings,” then “e-Delivery Preferences.” An email notification will be sent to the email address you provide when a new report or investor statement is made available. If at any time you wish to change your consent options, you simply log-in to your account and withdraw your consent.

Consider the investment objectives, risks, charges, and expenses of Madison Funds carefully before investing. Each fund’s prospectus contains this and other information about the fund. Call 800.877.6089 or visit to obtain a prospectus and read it carefully before investing.

“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”). MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority.

Any performance data shown represents past performance. Past performance is no guarantee of future results.

Non-deposit investment products are not federally insured, involve investment risk, may lose value, and are not obligations of, or guaranteed by, any financial institution. Investment returns and principal value will fluctuate.

This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees, or sales charges, which would lower performance.

The S&P 500® is an unmanaged index of large companies and is widely regarded as a standard for measuring large-cap and mid-cap U.S. stock-market performance. Results assume the reinvestment of all capital gain and dividend distributions. An investment cannot be made directly into an index.

©Madison Asset Management, LLC.