Quarterly Market Review 2023 Q1

tauruscapitalmgmt
Jan 13
2 min read

2023 Q1 Market Snapshot

The first quarter of 2023 brought single-digit gains in both stock and bond markets, but it was still a bumpy ride for investors. Inflation was stickier than expected, which perpetuated the uncertainty around what to expect from the Federal Reserve and interest rates. In March, concerns shifted from inflation to liquidity issues at regional banks nearly overnight with the collapse of Silicon Valley Bank. The Fed's response helped assuage concerns of wider spread and systemic risk, and the stock market weathered the storm. A few interesting data points from Q1:

U.S. stocks ended the quarter up 7.18%, but is still down 13.5% from the most recent record high set January 3, 2022.
Tech stocks had their best quarter since 2020 Q2.
The Fed raised the Federal Funds rate by 0.25% twice in Q1, ending the quarter at a range of 4.75%-5%, the highest since 2007.
The yield curve remains inverted, meaning the 2-year Treasury yield is higher than the 10-year Treasury yield, indicating that the market is expecting a slowing economy in the future, with lower levels of inflation.

Below is a snapshot of key top-line economic indicators:

Here is a market summary of first quarter 2023 returns:

U.S. Stocks

Q1 returns were up 7.18%, but it was still a quarter jostled around by shifting expectations of the Fed's plans for interest rate hikes and addressing inflation. U.S. stocks rallied in January (+6.8%) with optimism that interest rate hikes would slow or even cease, and possibly lead to rate cuts by the end of the year. February, however, brought inflation and economic data that changed outlooks, and stocks were down 2.3%. In March, the failures of Silicon Valley Bank and Credit Suisse caused temporary turbulence in the stock market, but by the end of the quarter, fears were eased, and the U.S. stock market finished up 2.3%.

While stocks remained stuck in the range they’ve been trapped in for over six months, there was a notable reversal of 2022 trends, with tech and growth stocks outperforming the market as a whole. The tech-heavy Nasdaq had its best start to the year since 2001.

International Stocks

Despite continued global concerns around inflation, international stocks posted 8% gains, and emerging markets were up 4% in Q1.

One week after the collapse of Silicon Valley Bank (SVB), a deal for UBS to buy out Credit Suisse was orchestrated. The market's immediate reaction was tempered by the management of both cases, and European markets were minimally impacted by the end of the quarter.

Emerging markets posted positive returns over the quarter, starting off with optimism about China's economy re-opening and some easing of internet regulatory pressure, which tapered off as the quarter progressed.