Newsletters

April 11, 2023

Quarter Ending March 31, 2023:

Quarterly Performance                    Q4 Index               YTD              Close

Dow Jones Industrial Average                .38%              .38%       33,274.15

NASDAQ Composite Price                    16.77%         16.77%       12,221.91

Standard & Poor’s Averages                  7.03%           7.03%          4,109.31

As we expected, the first quarter of 2023 was marked by ongoing market volatility. Concerns over inflation, interest rates, geopolitical tensions, and a possible banking crisis led to wild market swings. Despite all the uncertainty, both stocks and bonds finished up in the first quarter. The S&P 500 finished the quarter up 7.03% and most broad-based bond indices were up 2-3%. The best performing index for the quarter was the NASDAQ, which was up an astounding 16.77%. The NASDAQ’s outperformance was largely due to some retracement after a tumultuous 2022 and investors pumping money back into mega-cap technology stocks. Does that sound familiar…? 

The S&P 500 gained more than 4% in the first two weeks of the year amid optimism about China’s economy reopening and that the Federal Reserve might soon halt interest rate hikes. The optimism was short-lived as economic data continued to show elevated levels of inflation tied with an extremely strong job market. This caused Fed officials to reaffirm the need for tighter monetary policy. To compound these issues, some economic reports started to show the early signs of a slowing U.S. economy. The U.S. consumer, which makes up 70% of the economy, has started to slow their purchase of goods and services. At the same time, savings rates have declined as consumers are taking on more debt.

The biggest surprise of the first quarter came in the banking sector. Two large U.S. banks failed and Swiss regulators forced the takeover of banking giant Credit Suisse. These events triggered fears of a global banking crisis that caused investors to flee stocks for safer assets. The events that transpired in March of this year were indeed unnerving; however, we do not believe there is a systemic banking problem. The demise of Silicon Valley Bank was caused by greedy management and decisions that were made 12-24 months ago. 

Although the quarter ended on a positive note, we still have concerns about the economy and are anticipating more market volatility. The Fed’s previous rate hikes are only now beginning to impact the economy and will continue to reduce economic activity. We believe bank lending standards will also continue to tighten, putting further restraints on economic growth. The Conference Board Leading Economic Index has fallen for 11 straight months. The index measures key elements of the economy and is designed to signal peaks and valleys in the business cycle. We believe a recession is unavoidable at this point. The question is just how bad it will be?

Throughout the last 12-18 months there has been a small silver lining. For the first time in a decade, “savers” are now being rewarded for holding cash. Current money market funds are paying north of 4%. With the rapid increase in rates, consumers could be incentivized to shift assets into money market funds. Although this may pull dollars out of the market, investors can be compensated to wait. If you have any interest in hearing more about money market options, please get in touch! 

As always, if you have any questions, give us a call. 

Jeffrey L. Farni, Sr. 

John C. Farni