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Market Brief: April 2023

April 5, 2023

The Markets (first quarter through March 31, 2023)

Wall Street proved resilient during the first quarter of the year, despite rising inflation, uncertainty about the Federal Reserve's actions, interest-rate hikes, and banking concerns. Inflationary data in January seemed to show inflation may have peaked, and the Fed would scale back its interest-rate hikes, if not cut them. However, subsequent inflation data showed prices ramped up again. Stocks and bond prices dipped as investors responded to concerns that interest rates would continue to rise and for a longer period of time. In addition to the impact of rising inflation, two major banks collapsed in March, sending bank stocks lower. Credit Suisse Group, nearing failure, was taken over by rival UBS Group, while several U.S. banks provided funds to keep First Republic Bank afloat. The economic recession that has been predicted has yet to come to fruition. The labor market remained strong, and while inflation continued to rise, the two primary indicators, the Consumer Price Index and the Personal Consumption Expenditures Price Index, showed prices slowed on an annual basis.

Despite all of this apparent turmoil, coupled with the ongoing war in Ukraine, stocks regained their footing and ended the quarter on the plus side. The tech-heavy Nasdaq led the benchmark indexes, followed by the S&P 500, the Global Dow, the Russell 2000, and the Dow. Investors poured money back into Mega cap Tech shares, driving them higher during the first quarter of 2023 after an underperforming 2022. Those gains helped drive the Nasdaq and the S&P 500 higher. Even with investors taking some gains from the Mega caps, other market sectors reaped the benefits. Energy stocks, which excelled in 2022, fell in the first quarter of 2023, as did crude oil prices. Gas prices rose minimally higher, with regular retail prices averaging $3.421 per gallon on March 27, $0.14 over prices on January 4. The dollar dipped lower, while gold prices rose higher.

The quarter kicked off with stocks enjoying their best January performance since 2019, as inflation data suggested that inflation may have peaked, raising hopes that the Federal Reserve would scale back interest-rate hikes and temper fears of an economic recession. Nevertheless, Federal Reserve Chair Jerome Powell cautioned that the battle against rising inflation was far from over and additional rate hikes were upcoming. In fact, the Federal Reserve hiked interest rates 25.0 basis points on the last day of the month. Growth stocks performed best, with Mega caps making solid gains. Consumer discretionary, communication, and tech sectors performed well, while defensive sectors, such as utilities, health care, and consumer staples, dipped lower. Bond prices advanced, pulling yields lower. While 260,000 new jobs were added in December, the growth was the slowest in two years. Average hourly earnings rose to the lowest annual level (4.6%) since September 2021. However, manufacturing declined at the fastest rate since May 2020, while services retracted for the third month running, according to the S&P Global Manufacturing PMI™. Nevertheless, each of the benchmark indexes listed here added value, led by the Nasdaq (10.7%), followed by the Russell 2000 (9.7%), the Global Dow (7.8%), the S&P 500 (6.2%), and the Dow (2.8%). Ten-year Treasury yields fell 35.0 basis points, crude oil prices dipped 1.7%, the dollar slid 1.4%, but gold prices advanced 6.3%.

Stocks gave up some of their January gains in February, with each of the benchmark indexes losing value. The Dow (-4.2%) fell the furthest, followed by the Global Dow (-2.7%), the S&P 500 (-2.6%), the Russell 2000 (1.8%), and the Nasdaq (-1.1%). Bond prices declined, driving yields higher, with 10-year Treasury yields advancing 39 basis points. Crude oil prices decreased 2.8% to $76.86 per barrel. The dollar rose 2.8% against a basket of currencies. Gold prices lost most of their January gains, falling 5.7% in February. Consumer prices advanced, with core prices (excluding food and energy prices) climbing 0.6%, the biggest advance since August. Over 500,000 new jobs were added, nearly three times the consensus estimates, and the largest increase in six months. The unemployment rate slid to 3.4%, its lowest level since 1969. Consumer spending rose 1.8%, the most in nearly two years.

March was a very choppy month for market returns. Despite an apparent banking crisis, investors stayed the course for the most part, driving stocks mostly higher. The Nasdaq and the S&P 500 led the gainers of the benchmark indexes listed here. Several sectors outperformed, including information technology, communication services, and utilities, while financials fell notably on the heels of the aforementioned bank failures. Manufacturing retracted, while services advanced, according to purchasing managers surveyed. Labor remained strong, with 311,000 new jobs added. Hourly earnings rose by $0.08 for the month and 4.6% since February 2022. The Consumer Price Index rose 0.4% after falling 0.5% the previous month. The PCE price index increased 0.3% and 5.0% over the past 12 months. The economy advanced at an annualized rate of 2.6% in the fourth quarter, short of the 3.2% increase in the third quarter. Crude oil prices and the dollar declined, while gold prices climbed higher.

Market/Index 2022 Close As of March 31 Monthly Change Quarterly Change YTD Change
DJIA 33,147.25 33,274.15 1.89% 0.38% 0.38%
Nasdaq 10,466.48 12,221.91 6.69% 16.77% 16.77%
S&P 500 4,109.31 3,970.15 3.51% 7.03% 7.03%
Russell 2000 1,761.25 1,802.48 -4.98% 2.34% 2.34%
Global Dow 3,702.71 3,919.85 0.99% 5.86% 5.86%
Fed. Funds target rate 4.25%-4.50% 4.75%-5.00% 25 bps 50 bps 50 bps
10-year Treasuries 3.87% 3.49% -42 bps -38 bps -38 bps
US Dollar-DXY 103.48 102.59 -2.25% -0.86% -0.86%
Crude Oil-CL=F $80.41 $75.57 -1.68% -6.02% -6.02%
Gold-GC=F $1,829.70 $1,987.80 8.37% 8.64% 8.64%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Looking Ahead

It remains to be seen whether the Federal Reserve will continue to push rates higher or pause in the second quarter. The impact of rate hikes on the economy and inflation is felt on a lag, and yet-to-be-released data in the coming weeks and months will likely weigh heavily on monetary policy decisions at the May and June FOMC meetings. The labor sector should remain solid, although job gains may wane some. Industrial production may actually show some gains, while the services sector is more likely to strengthen.

Data sources: Broadridge Investor Communication Solutions, Inc.

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