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Market Overview March threw some curveballs at us, but thankfully the news wasn’t all bad. The S&P 500 didn’t drop below its December low in the first quarter of 2023, which is a market indicator that's historically been a bullish sign for the rest of the year. Since 1950, during years in which the index’s first-quarter low was above its December low, the S&P 500 has averaged a full-year gain of 18.6%.* Looking back, the economy continued to grow in March... but with inflation still at unacceptably high levels, the Federal Reserve tightened rates even further. Early in the month, the S&P 500 was gaining ground until the collapse of several banks sent global markets into a minor panic. This rattled consumers, understandably, but most experts agreed that this event was notably different than the collapse in 2008 and the risks of a broader contagion are thought to be limited for now. Mike Mayo, senior bank analyst at Wells Fargo, told CNN’s Julia Chatterley, “This is night and day versus the global financial crisis from 15 years ago. Back then, banks were taking excessive risks, and people thought everything was fine. Now everyone’s concerned, but underneath the surface, the banks are more resilient than they’ve been in a generation.” Time will undoubtedly tell. The ongoing rise in interest rates has made low-yielding assets like bonds worth a lot less (which can cause problems when banks need to raise funds quickly). In addition, there are likely many other financial institutions that have seen a significant dip in asset value, so the potential scale of the problem may signal a cause for concern. On the positive side, the job market remains solid, with weekly unemployment rates hovering around a historically low 195,000 into mid-March. Mortgage rates in February helped support housing activity, with new home sales, existing home sales, and housing starts all up for the month. However, mortgage rates jumped at the end of February and moved higher over the first half of March before dropping again after the banking sector problems. The housing sector will likely remain strong as demand continues to be high and supply remains at historic lows. While the Federal Reserve Bank of New York’s recession model predicts a 54.5% chance of a US recession sometime in the next 12 months, many economists are buoyed by the labor market’s resilience and other favorable indicators, which could signal a softer landing in the coming year. As always, we’re here for you. If you have concerns about current economic conditions, questions about finances, or need to discuss a change in your situation, just give us a call. *Forbes.com, “April 2023 Stock Market Forecast”, April 1, 2023 |
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StocksMarkets advanced in March despite a plethora of negative news surrounding regional banks. The NASDAQ 100, which contains the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization, roared to a +9.5% increase for the month. Intel, chipmaker Nvidia, and social media giant Meta were among the best-performing stocks for the month. The Dow Jones Industrial , which is a price-weighted index tracking 30 large, publicly-owned blue chip companies, trailed its large cap peers, coming in at +2.1% for the month. |
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Sector PerformanceIn US sector performance, large cap rose appreciably, while mid and small cap were both negative on the month. Seven of eleven sectors were positive on the month, with information technology advancing the most as investors flocked to the perceived safety of well-capitalized mega cap tech stocks. Communication services and Utilities were strong performers on the month, while Financials sold off mightily related to the fallout from the failure of Silicon Valley Bank, Signature Bank, and Silvergate Bank. |
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BondsMarch saw the Federal Reserve raise rates an additional 0.25%, bringing the benchmark federal funds rate to a target between 4.75%–5.00%. This fastest rate rise in history exposed cracks in the regional banking sector, which resulted in several failures. Yields declined marginally through the month across the curve, as investors shifted views on a badly-beaten-down asset class that was finally set up for stronger future performance in a now-elevated interest rate environment. The 2-year Treasury yield fell to 4.06%, posting the biggest monthly fall in 15 years, while the yield on the 10-year Treasury closed at 3.49%, recording its sharpest monthly fall since March 2020. |
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Economic UpdateIn what appears to be a sign of progress for the Fed’s rate hiking campaign to fight high inflation, the cost of US goods and services rose a meager +0.3%, showing continued progress towards lower inflation. Core PCE, the Fed’s preferred inflation gauge, rose less than expected, and consumer spending appears to have stabilized. Personal income’s mild increase stems mainly from labor income, driven in large by the 311,000 jobs added in February, the primary driver of income growth. While the softening of inflation is much welcome news, price growth likely remains too high for the Fed’s liking, and they must match that with maintaining financial stability. |
THOUGHT FOR THE MONTH |
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Index Definitions Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities. Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies. NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector. S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500. S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector. S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector. S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector. S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector. S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization. S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector. S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs. S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market. Disclosures PLEASE NOTE: When you link to any of the websites displayed within this email, you are leaving this email and assume total responsibility and risk for your use of the website you are linking to. We make no representation as to the completeness or accuracy of any information provided at these websites. A portion of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. 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Monthly Market Newsletter, March 2023
April 12, 2023