March Market Recap
How much impact does “desire” have on a particular outcome?
This thought came to mind while staring out the window the morning of April 1, hours after Mother Nature’s April Fools joke had dropped 8 inches of snow from Minneapolis skies. If we really want the snow in that driveway to melt faster, will it make any difference? Before you answer too quickly, we’ll point out that temperatures did reach 50 degrees (and sunny!) just 24 hours later.
If investors really want the stock market to go up… For the bear market to be over… For 2023 to be different than 2022… Will it have any impact?
It sure felt like resilience and desire played a part in equity returns last month. Despite a modern-day bank run that left two banks insolvent and several others reaching for regulatory safety nets, all three major equity benchmarks were positive in March.
As you might expect, Financials (-9.7%) suffered heavy losses last month with the silver lining being those losses appear mostly contained. No other sector in the S&P 500 lost more than 2%. Seven of the 11 sectors delivered gains. Technology (+10.9%) and Communication Services (+10.4%) were the best performers in March.
Benchmark Returns: March 2023 | YTD 2023
+1.89% | +0.38%
+3.51% | +7.03%
+6.69% | +16.77%
Even before news broke suggesting trouble in the banking sector, markets were off to a rocky start last month. On March 7, Federal Reserve Chair Jerome Powell suggested in testimony to Congress that Fed policy would remain restrictive given strong economic data.
“The ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.” The Dow sold off 575 points (-1.7%) following those comments, while two-year US Treasury yields rose above 5% for the first time since 2007.
Three days later on Friday March 10, California regulators shut down Silicon Valley Bank igniting panic in the retail banking sector (and in small cap stocks as a whole). The VIX Volatility Index surged nearly 30%. The S&P 500 closed at its lowest point since early January.
On March 12, the US government announced measures to protect depositors with money at retail banks, which thankfully marked the trough for stocks (and perhaps “peak desire” for a rebound). When markets opened on March 13, the major benchmarks stabilized, though bond yields did plummet as part of a flight to quality. The two-year US Treasury yield sank 0.62%, its largest one-day drop since October 20, 1987 (the day after Black Monday).
From March 14 through month-end, the S&P 500 gained 6.6%. As April began, the index was nearing the midway point (4,155) between all-time high (Jan. 2022) and bear-market low (Oct. 2022).
The Fed did raise interest rates by 0.25% on March 22. The latest hike is smaller than what had been forecast early last month. The sudden weakness in retail banking almost certainly caused the Fed to avoid a larger increase.
The most recent readings show inflation is receding at a pace in line with expectations. The Consumer Price Index (CPI) showed a 6% increase year-over-year (down from 6.4% a month earlier). The Fed’s preferred inflation measurement, the Personal Consumption Expenditures index (PCE) is up 4.6% year-over-year.
The jobs report again exceeded consensus expectations. The US economy added more than 300,000 jobs in February (this following 500,000 new jobs in January). Wages rose only 0.2% from a month earlier.
Small-cap stocks were a major underperformer last month. The Russell 2000 fell 5% in March. International equities booked better returns. Non-US Developed equities rose 3.1%. Emerging Markets gained 3.2%.
Consumer sentiment (as reported by the University of Michigan) worsened in March for the first time in four months. And that was before bank headlines elevated our national blood pressure. A reminder that increased pessimism is often a positive indicator for stocks.
Gold prices rose 8% in March. Crude oil fell 3%.
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Past performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
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