ND&S Weekly Commentary 4.3.23 – Equities End Q1 on Strong Note

 

Equity markets closed out the first quarter out on a strong note as it seems investors are looking beyond potential near-term challenges and are expecting a dovish shift in monetary policy.

For the week, the DJIA increased 3.22% while the S&P 500 gained 3.50%. The tech-heavy Nasdaq advanced 3.37%. International markets were also strong with the MSCI EAFE Index (developed countries) finishing higher by 4.02% while emerging market equities (MSCI EM) added 1.95%. Small company stocks, represented by the Russell 2000, jumped 3.94% for the week. Fixed income, represented by the Bloomberg Aggregate, declined 0.46% for the week as yields moved considerably higher across all areas of the yield curve. As a result, the 10 YR US Treasury closed at a yield of 3.48% (up ~ 10 bps from the previous week’s closing yield of ~3.38%). Gold prices closed at $1,980/oz. – down 0.75%. Oil prices jumped higher to close at $74.37 per barrel, up over 9.0% on the week.

In testimony before the Senate Banking Committee, vice chair Michael Barr called Silicon Valley Bank a textbook case of mismanagement … we would agree. In response to the SVB and Signature Bank closures, the White House has proposed stricter banking rules on liquidity requirements and annual stress tests on smaller banks … this would bring on its own set of challenges. Any additional liquidity problems are likely contained now with the emergency lending measures instituted by the Fed.

Economic data released last week showed that inflation may be beginning to moderate. The Fed’s favorite inflation measure, core PCE deflator, rose 0.3% in February, much less than what was expected and a deceleration from 0.6% in January. Also released on Friday, the University of Michigan’s measure of one-year inflation expectations came in at 3.6%, its lowest reading since 2021.

Markets have raced out of the gates in 2023, recuperating some of the declines felt in 2023. The best performing areas of the equity markets have been those which are considered growth stocks. In fact, the Morningstar Dividend Composite which tracks the US dividend sector, was only up a modest 0.55% for the first three months. Markets are reflecting that we have likely seen peak interest rates. This is not a sure-bet and something we will be continuing to monitor in the weeks ahead.

Best wishes for a Happy Passover and Happy Easter.

“The only sure weapon against bad ideas is better ideas.” – Alfred Whitney Griswold