March 2023 Market Review & Commentary

Welcome to Spring 2023! We hope this message you well and that you have found moments to enjoy the ever-changing weather. As we wait for our office building to switch on the air conditioning, Kelly and I continue to play the “open” the window / “close” the window game in a flailing attempt to keep the office at a comfortable temperature each day. If you have been a client for many years, you know this is the time of year where my optimistic outlook gets the better of me as I convince Kim that I should take on a house project that ends up engrossing every waking spring weekend hour. For example, five years ago, we built a raised clubhouse with a slide for Channing and 2 years ago I decided to repair, prep, and repaint our entire deck. Last weekend I caught myself eyeballing some projects while mowing the lawn, so we will see if I can control myself from over doing it this year. Only time will tell.

Just like me pondering if I have gone too far in my past Spring projects, everyone in the investing world is wondering if the Federal Reserve has gone too far in continuing to increase interest rates in their on-going battle against inflation. During the month of March, we saw the Federal Reserve increase rates again by another +0.25% and with this change, we saw three regional banks immediately fail due to the rapid rate increases and the effect that this had on the treasury markets. (If you have questions on the banking failures, please reference my March 14th email communication). The combination of the rate increase and bank failures created extremely wild swings in the bond markets. We saw the yield on 2-year Treasuries move more than 1% in the span of seven days during March (Figure 3). These types of violent swings are never seen in the short-term treasury market, and this speaks to how confused everyone is by the current activity. The Federal Reserve acknowledged that the current bank stress will tighten credit markets, with the result being” the equivalent of a rate hike or perhaps more.” So, this puts everyone on ice until the Fed’s next opportunity in May to define the next rate step and it will leave us time to focus on the following key areas which will drive its decision; the stability of the US credit markets, corporate earnings growth, inflation stickiness and the strength of the US Economy.

After all the economic activity and chaos in March, the DOW Jones Index finished the month up +1.89% bringing its year-to-date return to +0.38% while the S&P 500 finished +3.51% bringing its year-to-date return to +7.03%. The sector which was not able to shake off all the concerns was the financial sector, which finished the month of March down -9.55%.