March 2023 Stock Market Commentary
Ethan Pollard | April 05 2023
Markets were largely positive in March as investors weathered the second and third largest bank failures in US history. Silicon Valley Bank and Signature Bank were both taken over by the FDIC during one tumultuous weekend, while other regional banks continue to feel the aftershocks despite regulators stepping in to guarantee all deposits at these struggling banks.
The S&P 500, a broad benchmark for large cap US stocks, closed the month on a high note for a +4% monthly gain, returning +7.5% for the first quarter.
Smaller companies bore the brunt of the regional banking crisis, with the Russell 2000 index losing -5% on the month (+3% year-to-date).
Overseas equities gained +2% for the month, with Europe surviving their version of a banking crisis as Credit Suisse required emergency liquidity from the Swiss National Bank before ultimately being acquired by UBS. The MSCI ACWI ex-US Index is up +7% YTD.
Within fixed income, bonds benefited from a typical “flight to quality” amidst the banking turmoil, with the Barclays Aggregate Bond Index gaining +2.5% in March after a flat start to the year.
Gold prices rallied +8.5% in March, catching a bid as a safe haven asset with worried depositors looking for alternatives to cash.
Through all the month’s turmoil, our proprietary Three Dials remained steady in March, as we summarize below:
- Market Sentiment and Momentum: (Neutral ➖)
Equity markets proved resilient during a turbulent month of trading, with the CBOE’s closely watched Volatility Index spiking from previously low levels but still safely below the 2022 highs. With stock prices continuing to tread water around their long-term moving averages, our Momentum Dial remains in a Neutral position.
- Economic Fundamentals: (Negative ❌)
After raising interest rates another quarter-point at the March meeting, Fed Chair Powell acknowledged that stresses in the banking system could translate to further weakness in the real economy.
While it is too soon to assess the complete fallout from these bank failures, it only adds to the uphill climb of finding a post-pandemic equilibrium. For now, our Fundamental Dial remains Negative.
- Valuation: (Neutral ➖)
Plunging long-term interest rates in March provided continued relief to equity valuations, especially within the more rate-sensitive growth sector. Price-to-earnings ratios remain in-line with long-term averages, even as corporate profits struggle under the weight of higher costs. On the whole, our Valuation Dial remains in Neutral territory.
Our Three Dials composite reading continues to take a Moderately Defensive approach, with two dials in a Neutral position while one dial remains Negative.
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