Equities and bonds had a strong start to the year, with the Nasdaq having particularly strong performance, finishing the quarter up 17.05%. Broad strength in equities reflected positive economic reports, increasing hope in disinflation and a soft landing, the reopening of China’s economy following its Covid policy pivot, as well as warm weather in the U.S. and Europe that provided economic boosts and helped stave off concerns of a potential energy crisis. The market pulled back in March as investors grew nervous about an unexpected banking crisis, but actions taken by The Fed and other government agencies calmed nervousness about contagion spreading throughout the financial sector.
Fixed income had a solid first quarter after historically poor performance in 2022. Short and intermediate-term rates fell by 0.3-0.4% in the quarter, and the ten-year Treasury note finished the quarter just under 3.5%. While there is a debate about whether The Fed will have to cut rates in 2023, most investors expect continued progress in the fight against inflation, tighter financial conditions, and a potentially cooling economy to cause The Fed to at least pause, and eventually end, its rate hiking program in its upcoming meetings.
International developed and emerging markets also performed well in the first quarter of 2023. There were concerns about financial instability in Europe, but fears have eased, and inflation has slowed more than expected in recent weeks and months. Emerging markets have rallied as China’s economy has recovered rapidly after its Covid policy pivot, and comments from government officials have eased concerns about reopening the economy and further crackdowns on private enterprise.
We welcome a strong start to the year, but caution investors not to mistake the reprieve as an all-clear signal. While we remain confident in the trajectory of the economy and markets over the coming years, we still think there is significant uncertainty in the path of monetary policy and the economy that could result in more volatility in future months. However, no one can be certain of what the future holds, so we believe investors need to stick to a balanced and well-diversified investment approach to keep their portfolio well positioned for whatever scenario comes next.
|Index||1st Quarter 2023||Year-to-Date|
|Dow Jones Industrial Average||0.93%||0.93%|
|Bloomberg Barclays U.S. Agg Bond||2.96%||2.96%|
|MSCI EAFE Index||8.62%||8.62%|
|MSCI EM Index||4.02%||4.02%|
Data as of March 31, 2023. Returns are based on total returns. Past performance cannot guarantee future results.
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