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What to Know
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The first quarter of 2023 saw a myriad of market events.
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Market Recap
- The collapse of some banks in March, including Silicon Valley Bank, Signature Bank, and Credit Suisse, led to broader concerns about the stability of the Western banking system.
- Inflation decreased slightly in the US and Europe, but core inflation remained high in both regions, leading to an increase in the federal funds rate by 25 basis points in the US and an increase in the deposit rate by 50 basis points in Europe.
- Expectations of a slowdown in the US have accelerated, with market participants pricing in decreases in the Federal Funds rate by year-end, leading to a significant shift in the US Treasury yields in March.
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Equity Markets
- U.S. equity indices posted solid returns in Q1 2023, with the NASDAQ Composite seeing a substantial gain of 17.05%, while the Dow Jones Industrial Average posted a more modest gain of 0.93%. Large equities outperformed, with the Morningstar US Large Index gaining 8.65%.
- Non-US equity markets performed well in Q1 2023, with the MSCI ACWI Ex USA Index gaining 6.87%, and the MSCI EAFE Index posting a more substantial gain of 8.47%.
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Fixed Income Markets
- The Bloomberg US Aggregate Bond Index gained 2.93% in Q1 2023, with all sectors of the bond market performing well, especially long-duration treasury bonds and U.S. credit.
- Over the past 12 months, bond performance remains in negative territory, with long-duration bonds being the worst-performing section of the bond market, while foreign bonds outperformed domestic bonds slightly.
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Commodities & Currency Markets
- Commodity prices experienced a decline during the first quarter, with the Bloomberg Commodity Index losing 5.36%, but industrial and precious metals sectors posted gains.
- The US dollar depreciated by 0.97% against a basket of other currencies during the quarter but has appreciated 4.27% on a 1-year basis.
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Outlook
- The ongoing war in Ukraine has led to global geopolitical fractures and risks of deglobalization and fragmented capital markets, which may result in increased defense spending and supply chain diversification, leading to more sustainable inflationary pressures.
- Given the elevated risk of recession over the next two years, portfolio resilience is more critical than reaching for yield. As a result, higher-quality corporate credit and liquid positions during periods of credit market stress could prove prudent, along with investments in U.S. Treasury Inflation-Protected Securities (TIPS), commodities, and select global inflation-linked assets as a hedge against inflation.
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Disclosures
This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of this email and may change without notice. The information and opinions are derived from proprietary and non-proprietary sources deemed by IRON Financial to be reliable, are not necessarily all-inclusive, and their accuracy is not guaranteed. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted by IRON Financial, its officers, employees, or agents. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
The information herein has not been based on the consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal, or regulatory advice. Investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.
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