7 Things You Should Know about the MarketApril 20, 2023
How might ongoing impacts of the Silicon Valley Bank collapse, inflation, Fed rate hikes and a labor market “cooldown” impact your portfolio? Here’s a look inside our Q1 Market Update.
Have you read our Q1 Market Update? It was a first quarter for the history books—here are some key takeaways.
A look inside our Q1 Market Update:
- Most of the US Large Cap equity gains have been driven by just a handful of mega cap tech names (Nvidia, Meta, Apple, Amazon and more). This is great news for tech investors who lost big last year, but investors should be wary. Margins and credit will only tighten as we move through the final innings of the business and monetary cycle.
- Bonds rally– high yields and safety attract investors during banking chaos. Investment grade bonds across the yield curve appreciated in value during the quarter.
- Longer term maturity yields have been entrenched stubbornly within the 3.5% to 4.5% range, reflecting the bond market’s belief in a slowdown, lower inflation, and a lower terminal rate.
- The cost of capital will only increase as credit tightens and inflation continues to permeate through the domestic economy. The US dollar is incredibly expensive and international markets with globally advantaged companies have been largely neglected for the last decade or so.
- Ongoing reasons for caution in regional banking- Several banks with similar profiles to SVB such as First Republic Bank, which lost nearly 90% of its market value during March, must be closely watched in the coming months. They suspended their preferred shares dividend and have lost many top financial advisors since SVB’s collapse, an ominous sign for an institution that caters to high-net-worth clients with a very large amount of uninsured deposits.
- Commercial real estate is something to keep an eye on as capitalization rates continue to rise, the cost of debt moves higher and higher, and property valuations fall.
- Businesses are still adding or retaining workers, but more people are joining the work force as layoffs increase and job openings decline- After a blow-out jobs report in January, the labor market is cooling down in an orderly way. March jobs numbers showed the lowest monthly gain since December 2020.
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Generally, among asset classes, stocks are more volatile than bonds or short-term instruments. Government bonds and corporate bonds have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns. U.S. Treasury Bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate.
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