A review of Q1 2023, Presented by The PensionmarkMeridien Team
Some cracks in the economy became evident during the first quarter, with banking system uncertainty in the spotlight. The banking turmoil 1 towards the end of the quarter rightfully rattled investors and sent volatility soaring.
However, the market volatility was short-lived, as the first quarter concluded with buyers emerging in major U.S. stock indexes.
S&P TWO CONSECUTIVE POSITIVE QUARTERS
The first quarter of 2023 was the second consecutive positive quarter 2 for the S&P 500 and the Dow Jones Industrial Average. The Nasdaq 100 had the biggest gain of the three major indexes after experiencing a slightly lower fourth quarter of 2022.
Overall, during the first quarter of 2023, the S&P 500 increased by 7.03%, the Nasdaq 100 rose by a mammoth 20.49%, and the Dow Jones Industrial Average was marginally higher, by 0.38%.
Q1 TECH RALLY & FIXED INCOME
If the stock market had awards like the Emmys, the first quarter’s winner would have been technology 3.
In the first quarter, strength continued for the labor market, with solid payroll gains of 311,0004 in February & 517,000 in January. The unemployment rate did edge higher in February (from 3.4% to 3.6%), but the labor force participation rate was little changed at 62.5 % 5 in February.
U.S. Federal Reserve Governor Christopher Waller said6 in late March that inflation could decrease without harming the labor market.
The quarter’s last Consumer Price Index (CPI) data7 release showed consumer pricing declining in February from January levels. However, prices remained elevated. Core CPI (which removes volatile food and energy) remains firm—potentially firmer than the Federal Reserve would like to see.
The inflation battle has resulted in the fastest pace8 of Federal Reserve rate hikes in decades.
QUARTERLY FED DECISIONS
The first quarter featured one Fed meeting in March, resulting in a 25-basis-point hike9. The hike was largely expected, although some participants wanted to see a pause in the wake of the banking turmoil.
The Fed’s 2% inflation target is still far away, with the last CPI reading of the first quarter showing inflation running at 6% year-over-year10.
The second quarter features two Fed meetings on May 3rd and June 14th, with continued rate hikes possible. However, rate hikes are not the only tools at the Fed’s disposal.
Other tools the Fed could use to tame inflation are known as Open Market Operations11 (OMO).
While these events were not an OMO, there have been discussions that the Q1 banking turmoil had a similar effect as a rate hike. Credit markets tightened after the collapse of SVB, and the resulting environment could help to slow the economy12.
PUTTING Q1 TOGETHER
Starting out 2023, the Nasdaq had its best January since 2001, a welcome way to start the year and quarter.
Major U.S. stock indexes traded lower in February as markets braced for additional interest rate hikes and economic headwinds were in focus. And March had it all: banking turmoil, a spike in volatility, and ultimately, a rally in the major U.S. stock indexes.
At the close of the first quarter, market expectations seemingly shifted towards a more gentle Fed for the remainder of 2023, with one more rate hike being the consensus. The Fed has also forecasted13 one more rate hike.
Active market participants are currently debating whether the market is getting ahead of itself, with some expecting rate cuts later in the year, even as the Fed suggests that will not be the case.
Amid all of this first-quarter speculation and turmoil, remaining focused on the long term became all the more important. A long-term focus prevents investors from getting caught up in quickly changing narratives that could trigger emotional decisions.
The PensionmarkMeridien Team may be reached at 866-871-9963
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This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
- CNBC, March 10 2023
- Axios, April 3, 2023
- Zacks, March 31, 2023
- CNBC, March 10, 2023
- BLS.Gov, April 7, 2023
- Finance.Yahoo.com, March 31, 2023
- CNBC, March 14, 2023
- Visual Capitalist, October 6, 2022
- CNBC, March 22, 2023
- BLS.gov, April 12, 2023
- Federal Reserve, March 2023
- CNBC, March 22, 2023
- CNBC, March 22, 2023
Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).